Image credit: The Malaysian Reserve
MALAYSIAN banks’ revenue and profitability were largely helped by the higher interest rates and economic recovery in 2022.
Bank Negara (BNM) has been playing its part in supporting the economic recovery by pursuing a “slow-and-steady” approach with regards to raising interest rates — the Overnight Policy Rate (OPR) was increased by 100 basis points (bps) over 2022.
Between May 2022 and November 2022, we saw four successive rounds of 25bps hikes from the record low of 1.75% to 2.75%.
BNM is also expected to raise the OPR by another 25bps at the Jan 18-19, 2023, Monetary Policy Committee (MPC) meeting which will restore OPR to pre-Covid-19 level of 3% as the central bank seeks to strike a balance between addressing inflation and supporting growth.
Supported by four 25bps hikes in 2022, local banks’ average net interest margins (NIMs) broadened by 6bps quarter-on-quarter (QoQ) to 2.39% in the third quarter of 2022 (3Q22) [1Q22: 2.28%; 2Q22: 2.33%]. Margins are anticipated to widen further in the next two quarters, buoyed by the OPR increase in November this year and another potential hike in 1Q23. Hong Leong Investment Bank Bhd (HLIB Research) analyst Chan Jit Hoong said the OPR hikes have had a positive impact on banks’ earnings and help broaden the NIMs.
“We estimated that every 25bps OPR hike would bump up the sector’s NIM by five to 6bps and the profit forecast by 4% to 5%,” he said.
In the latest quarter under review, Malayan Banking Bhd (Maybank) topped the list with a net profit of RM2.16 billion in the 3Q22, followed by Public Bank Bhd with a net profit of RM1.59 billion in 3Q22 and Hong Leong Bank Bhd with RM981.4 million in 1Q22.
UOB Acquires Citibank in SE Asia
Despite the positive profits on the bank, American banking group Citigroup Inc (Citi) continued with its plans — first announced on April 16, 2021, — to exit the consumer banking business in Malaysia, alongside 12 other markets across two regions, Asia and Europe, the Middle East and Africa.
The move is part of Citi’s ongoing strategic review to double down its wealth by directing investments and resources to the businesses where it has the greatest scale and growth potential, according to Citi CEO Jane Fraser.
The consumer banking businesses comprise Citi’s unsecured and secured lending portfolios, wealth management and retail deposit businesses.
On Nov 1, United Overseas Bank Ltd (UOB) announced that it has completed the acquisition of Citi’s consumer banking businesses in Malaysia and Thailand, while the completion of the acquisition in Indonesia and Vietnam is planned for 2023.
UOB said the acquisition is part of its strategy to expand its Asean retail business outside of its home market of Singapore.
The acquisition is expected to double UOB’s existing retail customer base in the four markets to 5.3 million customers and add 5,000 people to its team once completed.
Meanwhile, the transaction would give Citi a regulatory capital benefit of approximately US$1 billion (RM4.73 billion).
Affin Bank Disposes 63% Stake in AHAM for RM1.4b
In late January, Affin Bank Bhd announced that its wholly owned subsidiary, Affin Hwang Investment Bank Bhd (Affin Hwang IB), is disposing of its 63% stakes in Affin Hwang Asset Management Bhd (AHAM) to Starlight Asset Sdn Bhd for about RM1.42 billion.
Additionally, it said selected key senior management of AHAM would dispose of 594,338 ordinary shares in the fund management company for RM120.4 million.
In total, the proposed divestment entails 7,594,338 ordinary shares, representing approximately 68.35% of the equity interest in AHAM, for a provisional cash consideration of RM1.538 billion. It said the proceeds from the disposal would be utilised to fund Affin Bank’s group banking activities and working capital requirement.
The country’s second-smallest banking group by assets reported a net profit of RM872.36 million for 3Q22 compared to RM133.2 million a year earlier, thanks to a one-off gain of RM1.06 billion from the divestment of its 63% stake in AHAM which was completed in late July.
Digital Banks in Malaysia
On April 29, BNM announced the five digital banking licence winners from the 29 applications received, namely a consortium of RHB Bank Bhd and Boost Holdings Sdn Bhd; a consortium led by YTL Digital Capital Sdn Bhd and Sea Ltd; a consortium led by GXS Bank Pte Ltd and Kuok Brothers Sdn Bhd; a consortium led by KAF Investment Bank Sdn Bhd; and a consortium of MoneyLion Inc, Aeon Financial Service Co Ltd and Aeon Credit Service (M) Bhd.
Currently, the successful applicants are undergoing a period of operational readiness that will be subject to BNM’s validation via an audit before they are permitted to commence operations and this process may require 12 to 24 months.
The competitive landscape of the Malaysian banking sector is expected to be materially altered by the presence of these digital banks.
Bank Pembangunan Scandal
On June 29, Bank Pembangunan Malaysia Bhd (BPMB) initiated legal action against 27 individuals, including its former president and group MD, the late Datuk Mohd Zafer Hashim, over a RM400 million loan granted to Aries Telecoms (M) Bhd.
The loan was approved in May 2012 to partly finance a RM1.3 billion project undertaken by Aries Telecoms to install a fibre optic network around Peninsular Malaysia — however, BPMB alleged that the money was misused.
BPMB accused the defendants of conspiring and using unlawful means to defraud the Minister of Finance Inc-owned development financial institution (DFI) and of concealing such fraud and its proceeds from BPMB.
The DFI said that the loan was disbursed to Aries Telecoms without fulfilling necessary conditions; therefore, the DFI seeks a total of RM564.99 million in losses and damages as a result of the acts by the defendants.
On July 22, the Kuala Lumpur High Court was told that Mohd Zafer has passed away in London during a case management in the BPMB case. However, it is unclear as to the cause of his death.
Nonetheless, BPMB seems to be more structured now, following the appointment of new group CEO Roni Lihawa Abdul Wahab, who is the former Khazanah Nasional Bhd ED of investments.
Previously, Arshad Mohamed Ismail was appointed as the group CEO for a three-year term to helm BPMB in April 2019.
Public Bank Founder Teh Hong Piow Passes Away
On Dec 12, Public Bank Bhd founder and chairman emeritus Tan Sri Dr Teh Hong Piow passed away at the age of 92.
Teh held a 21.64% stake in Public Bank through his private investment vehicle, Consolidated Teh Holdings Sdn Bhd, and also directly held a 0.64% stake in the bank, according to Bloomberg.
With Teh passing, CGS-CIMB Securities Sdn Bhd (CGS-CIMB Research) expects that his demise would trigger a major change in the shareholding structure of the bank.
“His demise would lead to a material change in the shareholding structure of Public Bank with the potential emergence of new major shareholders.
“However, we do not have any knowledge on the arrangement by the late Teh for these shares. The possibility of merger and acquisition (M&A) for Public Bank in the future depends on the plans by the persons who will inherit these stakes, in our view,” CGS-CIMB Research said in a research note.
Nonetheless, the research house noted that the individuals who will inherit Teh’s stake in Public Bank cannot hold more than 10% stake per person, aligned with Section 92 of Financial Services Act.
Source: https://themalaysianreserve.com/2022/12/26/local-banks-thrive-in-2022-thanks-to-opr-hikes-and-economic-recovery/