AMMB sees traction in asset quality management, opex
KUCHING: AMMB Holdings Bhd (AMMB) saw progress in its efforts to arrest the slide in its net interest margins (NIM), giving guidance for stable recoveries over the medium term.
RHB Research Institute Sdn Bhd (RHB Research) noted that AMMB’s asset quality was improving gradually as its gross impaired loans (GIL) declined 16 per cent in the first half of financial year 2017 (1HFY17), helped by recoveries and write-offs, and lowered the GIL ratio to 1.64 per cent.
“Coupled with early signs of stabilisation in new GIL formation, credit cost pressures should recede in the quarters ahead, in our view,” it said in a note yesterday.
“Furthermore, management is confident of sustained retail loan recoveries.
“Management expects 10 per cent earnings growth in FY18 with impetus coming from its strategy to focus on the SME segment and benefits from cost initiatives.”
This comes as the group’s second quarter of FY17 (2QFY17) earnings rose nine per cent quarter on quarter (q-o-q) mainly on a three per cent q-o-q rise in non-interest income that was underpinned by a 119 per cent jump in trading and investment income; tight cost control with opex dipping two per cent quarter on quarter (q-o-q), and a lower effective tax rate and minority interests.
“While we believe the 2QFY17 trading gains are unsustainable – given the recent rise in bond yields – good traction in recoveries of retail non-performing loans (NPLs) suggests that AMMB would likely benefit from continued loan impairment recoveries in 2HFY17.
Coupled with early signs of stabilisation in new GIL formation, credit cost pressures should recede in the quarters ahead, in our view.
“This is contrary to our earlier expectation of a small credit cost of seven bps. 1HFY17 annualised ROE was 8.8 per cent, within management’s revised range target of 8.5 to nine per cent,” RHB Research said.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) called on investors to keep watch on AMMB’s deliveries as the bank aspires to achieve return on equity (ROE) of 8.5 to nine per cent in FY17 on the back of annual net profit growth of five per cent and cost-to-income ratio of less than 57 per cent.
These are premised on focused growth segment, products focus, and sustaining its position with its current engines.
“In 2QFY17, we have seen AMMB staying on track with its NIM and cost- savings targets. Rerating catalysts would emerge when strategic initiatives start to deliver results in the coming 12 months and possible changes at the shareholders’ level,” AllianceDBS Research said.
“While asset quality showed improvement in 2QFY17, we remain cautious on the bank’s exposures to the oil and gas sector and real estate which currently make up 4 per cent and 13 per cent of gross loans, respectively.
“While more recoveries can be anticipated, AMMB expects the long-run average credit cost (excluding recoveries) to come in around 50bps.”
RHB Research