This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

A leadership transition is underway at AMMB Holdings Bhd (AmBank Group). Group CEO Datuk Sulaiman Mohd Tahir is leaving the country’s sixth largest banking group by assets after eight years at the helm, and will be succeeded by Jamie Ling — its chief financial officer since June 2017 — on Nov 23.

It must be somewhat of a sweet relief for Sulaiman, 60, to be retiring after years of having been in “firefighting” mode — right from Day 1 on the job — owing to the group’s historical dealings with scandal-ridden 1Malaysia Development Bhd (1MDB) and its related entities.

While other bank CEOs had had their hands full over the years navigating the complexities of competition, higher capital requirements, digital disruption and the Covid-19 pandemic, Sulaiman had the 1MDB albatross to deal with on top of all that.

“No other bank has gone through what AmBank Group has gone through, that is for sure. To be able to come out of all that [adversity], to be able to put it on a clean platform, and today, to have it alive and kicking, growing, ready to chart whatever path it wants — is the biggest achievement for me.

“It’s like bringing up a child and, at the same time, you grow up,” he tells The Edge in an interview.

Battle-worn, but visibly more at ease than in any of his previous interviews with us, Sulaiman talks about the bank’s past challenges and its strong comeback, and also provides an insight into its next four-year plan that will start running after the current financial year ending March 31, 2024 (FY2024).

Sulaiman’s eight years of leadership has certainly been a trial by fire. On Nov 23, 2015, his first day on the job, AmBank Group was slapped with an unprecedented hefty penalty of RM53.7 million by Bank Negara Malaysia for compliance breaches in relation to transactions linked to 1MDB and the latter’s subsidiary then, SRC International Sdn Bhd. The central bank also required it to set aside an average of RM25 million a year, for four years, to improve its systems and infrastructure.

Getting right down to work, Sulaiman launched a four-year (FY2017-FY2020) strategic plan, known internally as Top 4, under which the group successfully eased its decades-long focus on large corporates and turned its attention to mid-sized corporates and small-to-medium enterprises (SMEs) for growth.

Sulaiman then set out on a new four-year strategy (FY2021-FY2024) called Focus 8, because of its eight areas of focus, ultimately aimed at achieving a return on equity (ROE) of at least 10% by its conclusion in FY2024.

However, in February 2021, AmBank Group was dealt a major blow. It stunned the market with news that it had agreed to pay the Malaysian government a massive RM2.83 billion as a global settlement for its historical dealings with 1MDB and related entities. For context, the sum was more than double the RM1.34 billion net profit it made in FY2020. This led to the group posting a historic net loss of RM3.83 billion in FY2021.

“It was the first time we lost money to that extent. During the Asian financial crisis, we had lost money as a result of non-performing loans (NPLs) and all that, but this was a direct have-to-pay-out because of historical purported conduct,” says Sulaiman.

As part of the global settlement, it also had to enter into an arrangement with the Securities Commission of Malaysia (SC) to settle all pending regulatory actions in relation to its dealings with 1MDB, including the issuance of RM5 billion sukuk by Terengganu Investment Authority Bhd (as 1MDB was known then) and RM2.4 billion sukuk murabahah by Bandar Malaysia Sdn Bhd.  Under the settlement, its investment bank AmInvestment Bank Bhd was required to take corrective measures, including putting in place systems and processes to strengthen its due diligence framework for submission of corporate proposals relating to debentures and sukuk.

“Sulaiman was amazingly calm and steady throughout the storm and the tensions,” an industry source who worked closely with him during that period recalls. 

Sulaiman and his team stayed focused on the strategy at hand and successfully manoeuvred the group back on a strong foundational footing, making a net profit of RM1.74 billion in FY2023 — its highest in nine years — from RM1.5 billion in FY2022.

Notably, it delivered the targeted ROE of 10% in FY2023, one year earlier than expected, and managed to restore its dividend payout ratio (35%) to the level it was before being hit by the RM2.83 billion settlement.

“If you look at all the targets we set, we’ve met the expectations [by FY2023], one year ahead of time. In fact, we have gone beyond expectations. Out of a rating of 1 to 5, assuming 3 is “meet expectations”, I would say we are at 4. We have done very well, we’re in good shape,” says Sulaiman.

As at FY2023, AmBank Group’s income touched RM4.7 billion for the first time in history, while its cost-to-income ratio (CTI) — an indicator of the bank’s operational efficiency — improved markedly to 44.3% compared with 58.8% in FY2016 when it first started on its transformation journey.

Over the same period, its gross impaired loan (GIL) ratio came down to 1.46% from 1.94% and was better than the industry average of 1.75%; its net interest margin grew to 2.07% from 2.02%; and, its Common Equity Tier 1 (CET 1) capital ratio — a key measure of a bank’s financial strength — moved up to 12.5% from 11.3% (see charts).

Between FY2016 and FY2023, its loans expanded at a compound annual growth rate of 5.8% while CASA (current account savings account) deposits — a relatively cheaper source of funding for banks — grew at a CAGR of 12%.

On the SME front, AmBank Group doubled its SME loan book to about RM40 billion. “In terms of absolute growth over that period, we’re probably No 1 in this space. We’ve been taking market share from others,” he says. SME loans made up about 30% of its overall financing of RM130.2 billion in FY2023.

The icing on the cake was when RAM Ratings early last month upgraded AMMB’s long-term corporate credit rating and the long-term financial institution ratings of its banking subsidiaries back to AA2/P1 from AA3/P1, reflecting the group’s stronger capitalisation. RAM had in March 2021 downgraded the ratings because the RM2.83 billion settlement had lowered the group’s CET-1 ratio to 10.4%, the lowest of the eight local banking groups.

The group managed to restore its capital ratio by undertaking a RM825 million private placement exercise in April 2021, partially divesting its general insurance business and curtailing dividend payments.

Early last month, AmBank Group and MetLife International Holdings LLC proposed to divest their jointly owned insurance and takaful businesses to Great Eastern for about RM1.12 billion, subject to regulatory approvals. The move, which Sulaiman hopes will be completed by FY2024, will help boost the group’s CET-1 even further.

In 1QFY2024, AmBank Group’s net profit slipped 7.8% year on year to RM378.37 million as net impairment charges rose due to higher provisions. Its GIL ratio moved up to 1.66%. “The group’s asset quality is healthy despite a higher formation of new impaired loans in 1QFY2024, arising primarily from the mortgage and retail SME portfolios. We do not expect material deterioration in overall asset quality, given management’s tight monitoring and aggressive collection efforts. Crucially, these portfolios are largely well-collateralised,” RAM Ratings analysts said.

They expect the group to keep its GIL ratio at around 2% or less, potentially via write-offs.

Sulaiman states: “I’m happy [to leave] by virtue of the fact that I’ve done what I needed to do, and what was tasked of me to do over the last eight years. And, because of that, I believe the bank is now on a good, clean platform.

“So now, the question is — where do you want to take it next? Hence, the strategy for the next four years is super important.”

The group is in the process of crafting its next four-year strategy (FY2025-FY2028), which will fall under the purview of incoming CEO Ling.

A chartered accountant by training, Ling was previously the regional chief financial officer of Standard Chartered Bank for Greater China and Northeast Asia. 

“[Ling’s] appointment did not come as a surprise. It ensures continuity within the group, given that he has been with the group since 2017. He’s sharp and on the ball with regard to the group’s operations,” a senior banking analyst tells The Edge. 

Providing broad insights into the new strategy, Sulaiman says there are opportunities for the group to delve even further into the SME, ESG (environmental, social and governance) and digital space.

He believes digital enablement will provide the mid-sized lender access to new financing opportunities and possibly new markets.

On the SME front, the idea is to go more granular and reach out to micro-SMEs  through digital means. “I think the micro-SME space is still largely underpenetrated,” he remarks. 

As for ESG, he feels there are vast opportunities in transition financing, especially for SMEs. “How can we help SMEs to transit to meet new [ESG] requirements? How can we help them measure their greenhouse gas emissions?”

Despite AmBank Group having its own growth plans, a big question on the minds of investors is whether there could be shareholding changes and a bank merger in store for the group. The question often pops up because its single-largest shareholder, Australia and New Zealand Banking Group Ltd (ANZ), has over the last few years made known the fact that it is looking to exit, while stressing that it would hold out for a good offer.

ANZ owns a 21.66% stake, while the bank’s founder and former chairman Tan Sri Azman Hashim holds 10.89% and the Employees Provident Fund, 10.37%. Azman too may be amenable to selling his stake if he received a good offer, analysts say.

Asked for his view on a potential M&A at the bank, Sulaiman says: “Tan Sri [Azman] is still there [as a shareholder] and he is always going to be there, whether it’s him holding it or a trust. If anything at all, it’s more ANZ — the question is when, to whom and it would be subject to regulatory approval. If there was ever a time they wanted to dispose [their stake], it was probably during the peak of the crisis that we had. But now that everything is over, and it’s profit accretion for them, maybe they’re not in a hurry.”

The last time AmBank Group explored a merger was in 2017, with RHB Bank Bhd. After months of talks, the two parties called it off as they were unable to agree on the terms and conditions. Analysts still consider RHB Bank the best fit for the group.

Kenanga Research, in a Nov 1 report on the banking industry, states: ‘We believe [Ambank Group’s] current fundamentals are highly supportive of healthier discussions for M&A, which have in the past been frequently considered.”

It remains to be seen what AmBank Group’s future will hold, but it is still a well-liked stock. Bloomberg data shows nine analysts having a “buy” call and six a “hold”. There were none calling a “sell”. The average 12-month target price was RM4.15, which suggests further upside from its closing price of RM3.87 on Nov 10, which accords it a market value of RM12.81 billion. The stock has shed 3.2% year to date. 

Read also:
Cover Story: ‘I wouldn’t have done anything differently’

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.