Thursday 28 Mar 2024
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FACING growing pressures on their net interest margins and a tougher operating environment, banks have stepped up their chase for fee income in the past few years. However, industry observers say concerns have been raised recently over the extent to which this chase for fees by banks has been at the expense of compliance.

Bank Negara Malaysia is believed to be keeping a close watch on banks and their loans, and it will not be surprising to see non-compliance issues and some deterioration in asset quality emerging in the coming months.

Sources say last week’s top management shake-up at AMMB Holdings Bhd (fundamental: 1.7 ; valuation: 3.0) could be partly due to a Bank Negara audit. “It was uncovered at the audit that certain Bank Negara guidelines were not adhered to,” says a source familiar with the matter.

Another source adds that AMMB had started the executive search to fill senior management posts in the fourth quarter of last year.

Last Thursday, AMMB announced that its group managing director Ashok Ramamurthy would be stepping down as part of a planned transition, confirming a report by the theedgemarkets.com last Wednesday that a major shake-up at the top level of AmBank Group was on the cards.

In a statement to the stock exchange on Jan 29, the banking group said it had also commenced the process of identifying a replacement for the position.

AmBank adds that Ashok will rejoin his family in Melbourne in due course and, as part of a planned transition, resume his career at Australia and New Zealand Banking Group Ltd (ANZ) in a senior executive role.

AMMB also clarified that its managing director of wholesale banking Pushpa Rajadurai, AmInvestment Bank managing director and CEO for wholesale banking (products) Kok Tuck Cheong and group chief financial officer Mandy Simpson had existing contracts and would continue to serve the group as usual. However, sources tell theedgemarkets.com that Kok and Pushpa’s contracts may not be renewed.

The two have spent most of their careers in the investment banking arena and have been with AmBank Group for over two decades.

Ashok joined the local banking group in 2007 as a representative of ANZ and was made chief financial officer in the same year when the Australians became a strategic partner and major investor in AMMB.

In October 2008, Ashok held dual roles of deputy group MD and CFO and succeeded veteran banker Cheah Tek Kuang as group MD when the latter retired on April 1, 2012.

Today, ANZ is the single largest shareholder of AMMB with a 23.75% stake. The entry of ANZ has boosted the group’s product base, strengthened its business policies and improved its asset quality.

The Employees Provident Fund has a 14. 5% stake in the group while AmBank group chairman Tan Sri Azman Hashim has a 12.97% stake.

Tough times ahead

The banking system’s operating environment is getting tough and banking analysts say margins continue to remain under pressure as competition among banks intensifies.

“The implementation of the BR (base rate) is unlikely to have any immediate to medium-term relief on net interest margin (NIM) as competition for deposits remains intense while most banks have not raised their respective mortgage rates. The rising demand for more stable funding sources has led to very stiff competition on longer tenures with expensive deposits as reflected in the various fixed deposit campaigns and interbank market. The aggressive fixed deposit campaigns have also culminated in a sharp decline in CASA (current account, savings account) growth, which slipped to 4.2% in November 2014 versus the average 8% growth,” notes a Jan 6 UOB Research report.

The report further says the banking sector will continue to be plagued by slower-than-expected loan growth, persistent NIM compression and pockets of non-performing loan stress, translating into earnings disappointment.

While the operating landscape gets tougher for banks, industry observers say the local banking sector is resilient and capital ratios are at a comfortable level. Banking analysts say most of them are core equity tier-1 and their capital adequacy ratios currently range from 8% to 11%.

“The local banking system is sound today. Banks are well capitalised and stronger today than they were 20 years ago,” says a banking analyst.


Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on February 2 - 8 , 2015.

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