This article first appeared in The Edge Malaysia Weekly on October 7, 2024 - October 13, 2024

THE 38th floor of Menara Maybank is abuzz with activity during The Edge’s recent visit to the 51-­storey building to interview Malayan Banking Bhd (KL:MAYBANK) president and group CEO Datuk Khairussaleh Ramli.

Taking us on a tour of the floor, known internally as the M25+ Agile Space, Khairussaleh says that over 600 designated staff — some on this floor, and the rest at the group’s other locations, including in Indonesia and Singapore — are tasked with studying customer pain points and journeys, and coming up with solutions and ideas for customer-centric products and services, among other initiatives.

It is a new agile way of working under the country’s largest banking group’s ongoing corporate strategy, known as M25+, in which a key aspect is putting customers at the core of everything it does.

“The main thing about M25+ is that, while it is important to get the business outcomes in terms of performance, what is equally important is inculcating a new way of working across the organisation. That’s why I thought I should bring you here so that you can get a feel of it,” says Khairussaleh, who took the helm in May 2022.

Investors are certainly keeping a close watch on whether these initiatives help Maybank deliver the targeted outcomes under M25+, which culminates in the financial year ending Dec 31, 2025 (FY2025).

The key targets under M25+, launched in October 2022, were to grow loans at a faster rate of about 7% a year (from 6% in FY2022) and to achieve, by end-2025, a return on equity (ROE) of 11% to 12% and cost-to-income ratio (CIR) of about 45%.

“On the performance side, I must say we are making good progress,” says Khairussaleh. Despite growing challenges on the global front, including wars in the Middle East and market volatility, he sees no need to reassess the M25+ targets.

“I think we can hit the 11% to 12% ROE target. The only thing that we probably can’t meet is the CIR target, because we need to continue to invest. Among all the metrics, I would say that CIR is probably the one that is at risk,” he says.

As at 1HFY2024, its ROE stood at 11% on an annualised basis while CIR increased to 48.6% from 47.5% a year earlier. Loans grew by a strong 10.4% year on year (y-o-y), which Khairussaleh has previously guided may slow to between 7% and 8% by year end, as Maybank needs to balance loan growth with the ability to fund it at a reasonable cost to protect interest margins. Last year, loans grew 9.2%.

Maybank, like most banks, has been struggling to reverse a decline in net interest margin (NIM) since last year, due to higher funding cost as the industry competed fiercely for deposits. In 2QFY2024, after six consecutive quarters of a sequential decline, its NIM finally improved by two basis points (bps) to 2.02% from the previous quarter.

“We are managing NIM much better,” Khairussaleh says, noting that the competition for deposits is no longer as intense as it was last year. “At the end of the day, we want to focus on better-yielding assets and manage our liquidity better. We may not want to overly grow our assets if we cannot get the right liquidity.”

Khairussaleh anticipates continued quarter-on-quarter improvement in NIM in the next two quarters; at worst, it will be similar to that in 2QFY2024. For the full year, he guides that NIM may come in at around 2.02%, which is 10bps lower than last year’s 2.12%. It will nevertheless be a narrower decline than last year’s 27bps drop.

Despite the US having cut interest rates by a larger-than-expected 50bps last month, Maybank maintains its house view that Bank Negara Malaysia will keep its overnight policy rate — which influences banks’ lending and deposit rates — unchanged this year and the next.

A strong focus on driving initiatives in wealth management, bancassurance and the mid-market segment in its global banking (GB) business has proved to be particularly fruitful for Maybank. (The GB business comprises corporate banking and global markets, investment banking and asset management.)

“We call it our super-growth areas, which also includes other key business segments,” says Khairussaleh.

For example, the focus on mid-cap companies within GB — a segment that prior to M25+ was largely neglected — had resulted in loans from such companies growing 20% y-o-y to RM15.8 billion in 1HFY2024.

“In terms of investment banking deals region-wide, we completed 37 deals in the mid-cap segment for the whole of last year; but in the first nine months of this year, we’ve already done 35 and expect to complete a few more deals by the year end,” he reveals.

As for wealth management, Maybank managed to grow its assets under management by about 14% y-o-y to RM71.6 billion in 1HFY2024. This was driven by an increase in its customer base to 1.22 million people from 1.17 million.

On mortgages, Khairussaleh notes that loans originated via its Home2u app — introduced in March 2022 — had more than doubled to RM20.5 billion in 1HFY2024 from RM8.7 billion in the same period a year earlier. About 73% of all housing loan applications in Malaysia are now through this app as compared with 37% before.

These are just some of the “proof points” of successes achieved under M25+ so far, says Khairussaleh. However, he acknowledges that he needs Maybank’s key overseas units — namely, Singapore and Indonesia — to step up in order for the group to do better.

“We focus a lot on Malaysia and have invested quite a bit here, and now we’ve been trying to do the same in Indonesia and Singapore — we need to step up our efforts there, not necessarily in getting the outcomes first but in getting them to work differently, because they have been so used to working in the same way,” he says.

“In my mind, the agile way of working is not just for M25+. If we get it right, this way of working can continue for always, in terms of having people automatically thinking about the customer first and foremost.”

In 1HFY2024, Singapore accounted for 25.1% of Maybank’s profit before tax of RM6.89 billion, while Indonesia accounted for just 0.3%. Malaysia, as always, accounted for the bulk (69.2%).

“Indonesia, in the first quarter, we booked a loss because we decided to take a huge amount of provision on certain [corporate] accounts that had been on the books for a long time. Without that, it would have performed much better. But I must say, we are seeing good progress there now. We put in a new CEO (Steffano Ridwan) on April 1. Loans growth is back in the double digits, around 14% annualised as at June,” he says.

Steffano took over from Taswin Zakaria as president-director of PT Bank Maybank Indonesia Tbk in April after the latter retired. He was previously its director for community financial services.

Khairussaleh believes that the worst is over for its business in Indonesia. “The only thing about Indonesia is the overall macro front. The positive news is that their central bank has recently started to cut rates and the rupiah has strengthened.”

As for asset quality, he says he has no particular areas of concern within the Maybank group. “If anything, it’s more on the digital retail SME (small and medium enterprise) business in Malaysia, but the portfolio is very small — at only about RM2 billion [against the group’s loan book of RM668.8 billion] — and it is manageable.”

The group’s gross impaired loan ratio, an indicator of asset quality, improved to 1.29% as at end-June compared with 1.34% six months earlier. “Our credit cost has also improved, from 88bps at the height of Covid-19 [in 2020] to 40bps in 2022 and 31bps in 2023. We think that this year, for the full year, it will go below 30bps,” he says.

What analysts are keeping a close watch on is whether Maybank may write back some of its RM1.7 billion in management overlays, which served as pre-emptive provisions for past credit risk. Khairussaleh says: “We’re comfortable. We don’t think it’s necessary to do anything.”

In FY2023, the group made a net profit of RM9.35 billion, surpassing for the first time its pre-pandemic FY2019 profit level of RM8.2 billion. It paid out 60 sen a share in total dividends, entirely in cash, the sum of which represented 77.4% of its net profit. So far this year, it has declared an all-cash dividend of 29 sen a share.

Going forward, the intention is to continue with cash dividends. “We will have to look at our situation and [consult] the regulator, but as much as possible, that is the intention,” says Khairussaleh.

In August, Bank Negara imposed a RM4.32 million penalty on Maybank — which it has paid — for prolonged service disruptions that were in breach of financial services laws. Asked about it, Khairussaleh assures that it is not a question of not having invested enough in technology.

“If you look at M25+, it’s all about investment. We put aside up to RM4.5 billion, the bulk of it being investments in relation to technology. Our commitment, of course, is to make sure that we address those things [that happened]. We make sure that we address various aspects of our resilience; and more importantly, if anything happens, that we are then able to get back to serving our customers immediately, that’s key,” he says.

Khairussaleh reiterates that Maybank has no plan to merge with rivals. “Who do you want us to merge with?” he shoots back candidly, when asked about any possible mergers and acquisitions (M&A).

“We don’t discuss M&A as our focus is organic growth. The value that we can create from organic growth is still huge. You probably derive real value from that faster than doing an M&A. If we do an M&A, it will distract us and we’ll probably be set back by about two years just to integrate, and it’s not even sure that you will get that value.”

That being said, the group “will not say no outright” if opportunities arise. “If it makes sense across the parameters that we set, then yes, we can look at it,” he says.

He also states that there are no plans to list its Islamic banking (Maybank Islamic Bhd) or insurance and takaful (Etiqa) subsidiaries. “Islamic, certainly no, because it is a core component of our overall commercial business. Etiqa, also no. In my view, it’s about looking at how we can do things better between the bank and Etiqa, especially on the banca side. I still think there is a huge opportunity.”

As an example, he says of Maybank’s roughly 12.7 million bank customers in Malaysia, about 3.3 million are also customers of Etiqa. “But of the 3.3 million, only 1.9 million have a banca arrangement. So you can imagine the potential there. We want to harness [better penetration] between Maybank and Etiqa … that’s where there is real value that I can sustain for a long time. That would be my focus rather than a capital market activity,” he says.

Meanwhile, Maybank’s plan to move its corporate headquarters to the Permodalan Nasional Bhd-owned Menara Merdeka 118 will be delayed to “sometime in 2026”, he says. The group initially targeted to move early next year.

“We only got our CCC (Certificate of Completion and Compliance) quite recently … we had expected to get it a year ago, but it was delayed. That’s the reason,” he says.

Occupying 33 floors, Maybank is expected to be the building’s single-biggest tenant, which gives it naming rights. 

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