This article first appeared in The Edge Malaysia Weekly on November 4, 2024 - November 10, 2024
WITH a new chief on board, AMMB Holdings Bhd (AmBank Group) (KL:AMBANK), the country’s sixth largest of eight domestic banking groups, has been busy putting into action a five-year strategic plan, in which delivering better returns to shareholders is one of its key goals.
Jamie Ling, who was appointed group CEO on Nov 23 last year, and his team unveiled their Winning Together (WT29) strategy to the investment community in June.
Under the plan, which kicked off this financial year ending March 31, 2025 (FY2025), the group has set out three financial targets to be achieved by end-FY2029: improve its dividend payout ratio to 50%-60%, from 40% in FY2024, placing it in the top quartile among peers; lower its cost-to-income (CTI) ratio to 40% from 44.2%; and generate a return on assets of 1.1% from 0.97%, which translates into a return on equity (ROE) of 11% to 12%. Its ROE stood at 10% in FY2024.
Going by its financial performance in 1QFY2025, AmBank Group is off to a positive start.
It was one of only a few banks whose earnings exceeded analysts’ expectations that quarter, with net profit coming in at RM500.2 million — up 32% year on year and 5% quarter on quarter — thanks to a strong improvement in net interest margin (NIM) and lower provisions.
However, what many are wondering is whether it can sustain the momentum given the increasing challenges, including uncertainty on interest rate movement and market volatilities.
Ling is sanguine about the group’s prospects. There will be challenges throughout the five-year plan, but what is important is for the group to build its operational resilience, he says.
“For us, we want to stick to executing to the strategy. We have to be very focused. Near term, quarter one [ended June 30] has been very strong. Quarter two seems to be good, too, which means the first six months of our five-year plan, we’re off to a good start. I think we have the capacity to hit one of the three financial targets — on dividends — and demonstrate that we are on the right trajectory,” Ling tells The Edge in his first exclusive media interview since taking the helm.
The group is expected to announce its 2QFY2025 results later this month. It typically declares dividends in its second and fourth quarters. Last year, it paid out a dividend per share of 22.6 sen, which translated into a 40% payout ratio.
Having been AmBank Group’s chief financial officer for some seven years prior to taking on the top job, Ling is on the ball and familiar with the group’s operations. Industry observers and analysts see him as a highly competent successor to Datuk Sulaiman Mohd Tahir, who retired last year.
SMEs, midcorps to drive growth
In a nutshell, AmBank Group’s WT29 plan involves six focus areas, or “where to play, how to win”, as Ling describes them.
A key area will be a reliance on mid-level corporates (midcorps) and small and medium enterprises (SMEs) to drive the group’s lending and earnings growth. The SME and midcorp businesses — which typically offer better risk-adjusted returns — now fall under its business banking division.
Ling anticipates that the SME and midcorp businesses will contribute about 50% of AmBank Group’s net profit in the next five years, compared with 32% now.
AmBank Group had an SME loan market share of about 7% in FY2024, and it aspires to increase it to 10% by FY2029.
“Getting to 10% would be a good score,” Ling remarks. “Yes, it’s a super competitive space but it’s also a fast-growing one. The pie is growing fast. Between FY2018 and FY2024, during which there were two Covid-19 years that we lost out on, we managed to grow SME loans by RM10.7 billion to RM27.7 billion. In the next five years, we want to double that to about RM50 billion. Now, that will get us to 9% to 10%.”
Be that as it may, the SMEs are also a borrower group that the lender is keeping a close watch on for potential delinquencies.
“I think the SMEs have not fully recovered from Covid-19. They’re still struggling, particularly those around the services sector — for instance, those in food and beverage and tourism — and we do see that in terms of our rising impairment levels. So, delinquencies and non- performing loans (NPL) are still on the uptrend,” Ling says when asked where his asset quality concerns lie within the group’s lending portfolio.
“Hence, that is one hotspot that you have to watch as a banker, but at the same time, you avail credit lines to companies who may stand a chance to move out of their predicament, which means going to CGC (Credit Guarantee Corp) and SJPP (Syarikat Jaminan Pembiayaan Perniagaan) to extend working capital facilities.”
Nevertheless, the group has strong provision buffers to withstand potential defaults, he says. As at end-June, it had outstanding provision overlays of RM541 million, an increase from RM502 million three months earlier.
AmBank Group’s overall gross impaired loans (GIL) ratio deteriorated to 1.7% in 1QFY2025 from 1.66% in the same quarter a year earlier. In particular, the NPL ratio in the retail-SME book was “about 5% to 6%”, Ling says, compared with 6% before.
Meanwhile, among the other focus areas the group is counting on to help it achieve its WT29 targets are: to have wholesale banking originate and distribute large loans and maintain commercial surplus; to have retail banking do more targeted lending to ensure quality growth; to develop the wealth management business in a more integrated manner; and, to upgrade its existing technology stack and fintech capabilities.
“For retail [banking], we need it to pivot to be a net funder for the bank. Today, the wholesale bank funds the rest of the bank. What we want to do in the next five years is for retail to be a net funder, which means deposits outweigh loans … so there’s extra cash to fund the rest of the business,” he says.
Propelling AmInvestment Bank to the top of the league
The final focus area is to propel its investment banking arm, AmInvestment Bank Bhd, to become a Top 3 investment bank (IB) in terms of the categories it competes in, from Top 4 now.
“We’ve always been good in the debt capital markets, but now you can see that we’re leading many initial public offerings (IPOs) on the corporate finance side, and we’re also advising on mergers and acquisitions (M&A). We’ve got a very strong team built up in the investment bank,” Ling says.
Meanwhile, AmInvestment’s wealth and fund management business generate resilient earnings, he says.
AmInvestment, led by CEO Tracy Chen since October 2020, ranks prominently in the Bloomberg league tables for M&A advisory, and equity and debt markets. For the year to July 31, for M&A advisory, AmInvestment was ranked first by issue with a 22.73% market share and second by value with a 33.17% market share. For the IPO category, it was ranked first by value (31.03% market share) and second by issue (16.62%). For total bonds, it ranked third (14.56%).
Among the IPOs it has worked on include that of fertility care provider Alpha IVF Bhd, which was the largest ever on the Ace Market. It was the principal adviser — among other roles held — to the company, which made its trading debut in March. AmInvestment also served as the sole principal adviser for Malaysia Airports Holdings Bhd’s privatisation.
In FY2024, AmInvestment chalked up a net profit of RM141 million, which was higher than the RM81.94 million it made in FY2023 but lower than FY2022’s RM160.23 million.
AmBank Group, meanwhile, reported a 9.4% increase in net profit to RM1.87 billion in FY2024, the highest in a decade. Like other lenders, its net interest margin (NIM) — a key measure of profitability, or what it earns in interest on loans against what it pays out to depositors — suffered a compression over the last two years amid interest rate hikes and intense competition for deposits.
However, in 1QFY2025, its NIM grew strongly, increasing by 13 basis points year on year and 10bps quarter on quarter, to 1.89%, which analysts say was due to proactive liability management and its letting go of expensive non-retail deposits.
Ling guides that there is room for NIM to improve “a bit more” in 2QFY2025 on a q-o-q basis, albeit not necessarily by the same quantum as in the first quarter.
Of AmBank Group’s WT29 targets, dividend yields would potentially be the quick wins, he says. The group, which counts the Employees Provident Fund as its biggest shareholder with a 13.68% stake as at Oct 28, plans to continue paying out all-cash dividends as it is understood to be what investors prefer, he adds.
As for achieving the CTI target of 40%, he says this would take a longer time and would require “a lot of hard work”. “That would require a 10% productivity improvement, which is not going to be straightforward, so it’s going to be a stretch,” he says. “As for ROE, we are at 10.2% in the first quarter. If we can repeat 10-plus per cent this year, then there’s conviction to say 11% is achievable.”
Maybank Investment Bank Research notes that the group’s FY2029 ROE target of 11% to 12% does appear ambitious against the research house’s FY2027 ROE forecast of 9.6%.
“Nevertheless, there is room for earnings to surprise positively — FY2025 ROE alone could surpass our expectations on higher-than-expected NIM and lower-than-expected credit cost,” it says in an Oct 22 report.
It maintained its “buy” call and target price of RM5.95, which suggests further upside from AmBank Group’s closing price of RM5.06 on Nov 1. At that price, it had a market value of RM16.75 billion. The stock has gained a solid 31.2% year to date.
No plans for M&A
Ling says the group’s WT29 strategy is based on organic growth and, hence, there is no plan to acquire any business or attempt a bank merger.
AmBank Group’s second largest shareholder is its founder and chairman emeritus Tan Sri Azman Hashim, with an 11.83% stake held through private vehicle Amcorp Group Bhd, who is often speculated to be amenable to trimming his stake if he could fetch a good price.
Ling declines to comment, saying it is “a matter for shareholders”.
Should any M&A opportunities arise, the group would be open to consider “if there’s value” to it, he says. However, the lender is not sending out any signal that it is interested in M&A.
“We are focusing on our own growth, and if we can achieve a good set of results, then it proves that we are delivering on returns,” Ling says.
In June, Australia and New Zealand Banking Group Ltd, through its wholly-owned subsidiary ANZ Fund Pty Ltd, ceased to be a substantial shareholder of AmBank Group after disposing of its remaining 5.17% stake for RM701.16 million. ANZ became a part owner of the group in 2006.
For now, all eyes are now on Ling to see if he can deliver on WT29 and take the group’s earnings to new heights.
‘AmBank brought me home’
A banker since the age of 25, AMMB Holdings Bhd (KL:AMBANK) group CEO Jamie Ling has spent much of his career working abroad for major global banks.
But the Malaysian, 56, was glad to come home in 2017 to take on the group chief financial officer role at AMMB, better known as AmBank Group. On Nov 23 last year, Ling ascended to the group’s helm, succeeding Datuk Sulaiman Mohd Tahir who retired.
“I’ve lived in many countries, including the UK, Taiwan and Hong Kong, and my wife and kids travelled with me and would have to fit in, having to change house and schools every three to five years. Eventually, I thought it would be best to come back. AmBank brought me home,” he tells The Edge in his first exclusive interview since taking the helm.
Ling, a chartered accountant by training, was born in Terengganu and spent his first 10 years in the state’s capital. Interestingly, his late father was also a banker. “He was with Chung Khiaw Bank, now UOB. Because he was a branch manager, we moved around the country a lot — Klang, Johor Bahru, Ipoh. So, [I was] a rolling stone from young.”
His first job was with HSBC in London. “This was a year before the 1997 Asian financial crisis hit. Then my father got ill, so I resigned and came back to Malaysia. After he passed on, I spent a year with my mum … and later joined Standard Chartered in London, and I was with the bank for 18 years [in various markets],” he shares.
Despite AmBank Group being a Malaysia-focused lender, Ling’s international banking experience and his ability to adapt well to change make him an apt leader. With the industry increasingly expected to leverage technology and artificial intelligence on many fronts, AmBank Group will have to transform and meet the challenges that come with it.
In June, Ling and his team unveiled a new strategic plan known as Winning Together (WT29) — so named because “it moves individuals from being a winner personally, to winning with others”, he says — based on three core pillars of digitalisation, operational excellence and sustainability.
Under the plan, the group outlined several focus areas for growth, a key one being a reliance on small and medium enterprises (SMEs) and mid-level corporates to drive lending and earnings growth.
It also set out three financial targets to be achieved by the financial year ending March 31, 2029 (FY2029), namely improving its dividend payout ratio to 50%-60%, from 40% in FY2024; increasing its efficiency by lowering its cost-to-income ratio to 40% from 44.2%; and generating a return on assets of 1.1% from 0.97%, which translates into a return on equity (ROE) of 11% to 12%. Its ROE was at 10% in FY2024.
Ling will certainly be kept on his toes trying to deliver on the targets. “I don’t get enough sleep these days,” he admits. Busy as he is, Ling — who has two teenaged boys — likes to explore the country’s interiors. “I like discovering the parts of the country that are less trodden. I also go fishing with friends once every quarter or so,” he shares.
Below are excerpts from the interview.
The Edge: AmBank Group has focused entirely on the domestic market thus far. Do you plan to venture out?
Jamie Ling: I think it’s too far of a stretch for us to foray out. We want to focus domestically, but that doesn’t mean we don’t do international business. There are a lot of FDIs (foreign direct investments), particularly from China and South Korea, into Malaysia. We’ve created an international desk to basically capture the inbound customers, potential customers.
We can partner up with Chinese banks because they know the Chinese clients coming in. We are not really in direct competition with them as we are not in the region, so no conflicts, and we get some form of safeguards around the customer because our partner can co-share the risks. So, we want to do that inbound business and, obviously, that becomes a growth [area] if we get it right.
What is AmBank’s stance in terms of M&A? Tan Sri Azman Hashim has a stake of just under 10% and there’s always been speculation that he is open to selling at a good price …
That’s a matter for the shareholders. What we [as management] need to do is stick to delivering the three financial goals under the WT29 plan.
So this plan is entirely based on organic growth and you’re not looking at M&A whatsoever, not even of a certain type of business?
Correct.
But if an opportunity came knocking, would it be something to consider?
Obviously, it has to work for all shareholders. If there’s value in the discussions, obviously we will consider. But we’re not making a move to say we’re open for talks. I think such events are driven if both sides are motivated. We are focusing on our own growth, and if we can achieve a good set of results, then it proves that we are delivering on returns.
You talked about divestitures earlier. What are some of the businesses that could potentially be divested?
There’s one that has been in the pipeline for a while now, which is the life insurance business. Both partners, us and Metlife, will want to exit. So, that is still pending the regulatory approval. (In October last year, AmBank Group and Metlife International Holdings LLC announced plans to sell their joint venture insurance and takaful businesses to Singapore’s Great Eastern for RM1.12 billion.)
How soon do you see that happening? Why is it taking so long?
We’re working with Bank Negara Malaysia. We’re actively discussing with them. There is a lot of back-and-forth around submissions. I think we’re there on clarifications. So, we just have to wait.
Apart from this, any other potential divestments of non-core business?
There’s nothing left that’s really non-core.
On asset quality, do you have any concerns about the real estate sector?
No, no concerns on the credit portfolio. For corporates, what we need to watch out for is that because economic activity has started picking up and there’s a lot of capital being deployed into Johor in terms of real estate construction — industrial, data centre, mixed-use development, residential, the whole SEZ (Special Economic Zone) — we’re following our clients there. But, obviously, you need to pick the developers that you know very well and you need to understand the whole aspect of supply that will come in three, four years’ time. We just have to make sure that we are aware of scenarios that could sort of get in the way of sales, properties, the oversupply of it, and so on.
What do you see as being your biggest challenge?
People. Always people.
What about it is challenging?
A few things. One is, do we have the skills gap plan to address our needs today, but also the future skills? You know, the engineers, the coders, the data scientists. The other challenge, obviously, is with technology and digitalisation — it’s that 50% of our workforce will be affected. So, that repurposing is really an ambiguous and a non-linear one because the more you adopt technology, some roles will be realigned and the workforce has to adapt. And, no, layoffs are not an option.
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