This article first appeared in The Edge Malaysia Weekly on July 3, 2023 - July 9, 2023
BANK Muamalat Malaysia Bhd, an Islamic lender that is 70%-owned by Tan Sri Syed Mokhtar Albukhary-controlled DRB-Hicom Bhd, expects its financing growth to slow slightly to 14% this year after 16.3% last year, its chief says, amid growing economic headwinds.
Its projection is, however, notably higher than analysts’ expectation of 4% to 5% growth this year for the overall banking industry, following last year’s growth of 5.7%.
The bank’s gross financing book stood at RM24.26 billion as at the financial year ended Dec 31, 2022 (FY2022), the bulk of which comprised consumer loans.
“[We] expect financing growth of RM3.4 billion, or 14% growth, for FY2023. As at May this year, Bank Muamalat recorded financing growth of RM1.3 billion (6% growth), demonstrating a positive trajectory towards meeting our projected growth for the entire year,” its president and CEO Khairul Kamarudin says in an emailed response to questions from The Edge.
He attributed the growth to several factors, including the group’s strategic focus on expanding its product offerings, leveraging digital channels to reach a wider customer base and tapping emerging market opportunities.
Apart from conglomerate DRB-Hicom, Bank Muamalat’s other shareholder is Khazanah Nasional Bhd, with a 30% stake.
The bank, which released its audited financial report for FY2022 last month, registered a strong 41.6% increase in net profit to RM222.78 million for the year, driven by a 19.6% rise in distributable income and robust financing growth. Total revenue expanded 17.8% to RM1.34 billion.
It also released its unaudited financial results for 1QFY2023, which showed that net profit fell 22.7% year on year to RM33.51 million.
It blamed the weaker earnings on stiffer competition for deposits in the market, which led to net profit margin compression, as well as higher charge in allowances for impairment loss on financing of RM14.9 million compared with RM4.3 million before.
Indeed, like most other lenders, Bank Muamalat’s net income margin (NIM) fell during the first quarter. According to Khairul, its NIM dropped by 19 basis points to 1.92% in 1QFY2023 from 2.11% in the preceding quarter.
“However, it is important to note that Bank Muamalat’s rate of reduction in NIM is among the lowest within the industry — we observed reduction of between 0.16% and 0.88% in NIM among the industry players,” he says.
He adds: “Looking ahead, we anticipate that the competition for deposits will continue to pose challenges in the upcoming quarters of 2023. Nevertheless, in tandem with the increase in the OPR [overnight policy rate] in May this year, we expect the NIM to improve in the near future.”
Of its gross financing of RM24.96 billion as at end-March, 83.8% was based on the variable rate while the rest was at fixed rates.
Asked about the bank’s provisioning trends going forward, Khairul says its financing loss to coverage ratio, at 119%, provides a “comfortable” buffer to absorb any potential losses.
He highlights that the bank’s asset quality remains strong, as indicated by its gross impaired financing (GIF) ratio of just 0.97% as at end-March, which is significantly lower than the industry average of 1.75% for the same period.
“Despite [the] gloomy global economic outlook, the reopening of domestic economic sectors post-pandemic allows Bank Muamalat to continuously maintain a healthy GIF ratio,” he says.
Bank Muamalat’s gross financing of RM24.96 billion comprises mainly home financing (RM7.82 billion), personal financing (RM7.2 billion) and “other” term financing (RM4.57 billion).
The group’s outstanding credit exposure with connected parties stood at RM2.33 billion, none of which was non-performing or in default.
Meanwhile, Khairul indicates that there is no plan for the group to undertake any merger and acquisition (M&A) despite the stiff competition in the industry and a move by Malaysia Building Society Bhd and Malaysian Industrial Development Finance Bhd to merge this year.
“Bank Muamalat continues to be guided by the strategic plans outlined in RISE26+ (an updated version of RISE24, its five-year strategic plan that was to run until 2024). RISE26+ has provided the anchor points in executing our business plans, by leveraging our strengths to maximise value for our customers and shareholders,” he says.
Still, many often wonder if the bank will eventually go down the M&A route, given that Bank Negara Malaysia requires DRB-Hicom to pare its stake in the bank to at least 40%. That was the condition set by the central bank when it gave the go-ahead for DRB-Hicom to buy a 70% stake from Bukhary Capital Sdn Bhd — an entity also controlled by Syed Mokhtar — in a RM1.069 billion deal in November 2008.
Past attempts at M&A have failed, and after more than 14 years, the condition has yet to be fulfilled. The bank is understood to have since considered a listing as a pare-down option, but there have been no developments on that front.
DRB-Hicom’s banking business via Bank Muamalat accounted for 9.2% of the group’s RM4.18 billion revenue in the first quarter of this year.
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