AFTER an extremely challenging financial year, bankers are not getting their hopes high about a recovery this year, choosing instead to be prepared for any unforeseen circumstances.
Malayan Banking Bhd (Maybank) group CFO Datuk Feisal Zahir says at this point, it is difficult to provide a definite view on the outlook for the operating environment.
“It is very much dependent on the speed of the economic recovery especially in our home markets, and the ability of consumers and corporates to recover from the impact of the pandemic, ” he tells StarBizWeek.
Last year, banks’ provisions or the money they set aside for doubtful debts, swelled up not only in Malaysia but across the region as the Covid-19 pandemic, which is still ongoing, affected the incomes of businesses and individuals and their ability to service their bank debts as well as to take on fresh loans.
The elevated provisions caused more than a dent in the incomes of most lenders, which in turn resulted in lower dividend payouts to shareholders or in some cases, none.
Although banking analysts generally say the worst is over for the industry, bankers themselves are not overly optimistic.
“While we remain hopeful that the situation will improve quickly and opportunities will emerge for us to leverage for future growth, we remain prepared for any unforeseen events, ” Feisal says.
CIMB Group Holdings Bhd group CEO Datuk Abdul Rahman Ahmad (pic below) says given the resurgence of Covid-19 and the necessary restrictions, CIMB will maintain a cautious growth stance in 2021.
Provisions, will remain elevated against the lender’s historical normalised level of credit cost, he tells StarBizWeek, given the continued impact of Covid-19 on severely affected sectors like tourism, leisure and property.
However, it is still expected to improve over last year’s provisions amid expectations of an economic recovery, he says.
For the financial year ended Dec 31,2020, CIMB’s total loan provisions stood at RM5.3bil, up by more than 160% from RM2bil a year earlier, impacted mostly by oil and gas impairments in Singapore and legacy loans.
Similarly, Maybank also saw net impairment losses rise to RM5.07bil against RM2.32bil a year ago.
Both CIMB and Maybank are the country’s top two largest lenders with presence across the Asean region.
To be sure, Malaysian lenders were not alone in seeing their incomes slashed last year as a result of setting aside money for doubtful debts.
In Asean, the general expectation is for bad loans to accelerate this year as governments lessen their stimulus packages and aid as Covid-19 vaccinations gather speed.
The impact is expected to hit the lower-income groups, especially those hired in vulnerable industries - the most.
According to a Nikkei Asia compilation and report which studied the 2020 earnings of 16 big listed commercial banks in Indonesia, Malaysia, the Philippines, Singapore and Thailand, the combined net profit of these banks for the year was US$19.4bil (RM79.5bil), down 34% from 2019.
The total non-performing loans (NPLs) of these banks on the other hand, increased 17% to US$39.6bil, the highest in at least a decade, according to Nikkei Asia and among the 16 banks, the fastest growth in bad loans was recorded at the Philippines lenders, it adds.
The news agency singles out Malaysia as the country which managed to buck the regional trend and points out that total bad loans at its three major banks fell some 1.5% in 2020, from the previous year.
But this came at the expense of higher provisioning.
Cost in focus
For this year, CIMB’s Abdul Rahman says cost management will remain a core area to improve productivity and efficiency and the bank will focus on business segments that have strong growth and profitability.
Maybank’s Feisal says the banking group will adopt a “disciplined” management of costs.
“At the same time, we believe that there will be pockets of growth opportunities across segments such as in consumer banking and wealth management, insurance, corporate and investment banking and Islamic banking, as the economies recover across this region especially in our home markets.
Hence, we will tap these opportunities within our risk appetite.”
Meanwhile, AMMB Holdings Bhd (AmBank) one of the smaller banking groups in Malaysia appears to be slightly more optimistic.
Its group CEO Datuk Sulaiman Mohd Tahir (pic below) tells StarBizWeek, broadly, the lender does believe that the worst is over.
“As a prudent and preventive measure, we have been setting aside macro overlay provisions in relation to the potential losses in the loans under moratorium, ” he says.
As at Dec 31,2020, cumulative macro provision stood at RM441.8mil, over and above the normal levels of provisions the lender incurs, he adds.
AmBank recently made headlines over a RM2.3bil global settlement that it will have to make with the government in relation to the group’s past dealings with scandal-ridden 1Malaysia Development Bhd.
Sulaiman says the group will continue to set aside macro overlay provisions in the fourth quarter before it closes its financial year ending March 31,2021.
Notably, provisions for the RM2.3bil settlement will be made in the coming fourth quarter as well and will push the lender into the red.
“The banking sector is a shock absorber of any economy and we are definitely affected but we are navigating through this period of uncertainty well, ” Sulaiman says.
“We have to manage the risk and return trade-offs and allocate our capital resources against the risk that we assume.
As a twin measure, we have of course kept a keen eye on operating expenditure and are mitigating any cost overruns.”