Maybank expects credit costs to shrink in second half of the year

KUALA LUMPUR: Malayan Banking Bhd (Maybank), which saw net profit for the half year ended June 30, 2016 impacted by higher provisions for loan impairments, expects credit costs to trend lower in the second half of the year (2H) on the back of proactive restructuring and rescheduling (R&R) of its customers' repayments carried out in the first half.
Maybank undertook proactive R&R of its customers' repayments to better match their projected cash flows. The strategy, adopted since the beginning of 2016 to manage asset quality, resulted in impairments for loans and securities for the half year increasing to RM2.06 billion from RM693.6 million.
"We did this intentionally in 1H to allow a sufficient six-month period to recover. The rate of provisioning will trend better in 2H," group CFO Datuk Amirul Feisal Wan Zahir told a press conference after announcing the bank's financial results for the first six months of 2016 here yesterday. 
He said Maybank is closely monitoring the oil and gas industry after distressed Singapore oilfield services firm Swiber Holdings sought judicial management last month having earlier announced its liquidation.
Maybank's exposure to oil and gas-related loans is 3.75% (funded basis) or 4.2% (unfunded) of total loans. Amirul Feisal said proactive measures are being done to cover the oil and gas sector in Malaysia and Singapore.
Maybank's net profit for the second quarter ended June 30, 2016 fell 27% to RM1.16 billion from RM1.58 billion a year ago due to higher net impairment charges. Revenue jumped 22% to RM10.94 billion from RM8.94 billion in the previous year's corresponding quarter.
For the six months period, its net profit dropped 21% to RM2.59 billion from RM3.28 billion in the previous corresponding period due to higher provisioning. Revenue rose 22% to RM22.12 billion from RM18.12 billion in the previous year.
Group president and CEO Datuk Abdul Farid Alias anticipates some of these impairments to be addressed in 2H through R&R and does not rule out the possibility of a further 25bps cut in the benchmark interest rate by the Bank Negara Malaysia before year-end, which will drive higher demand for credit.
Farid also expects loans to pick up in 2H and is maintaining Maybank's loan growth target of 8%-9% for this year.
He said the bank saw an encouraging trend in loan growth for 1H, which rose 4.3% year-on-year. This came on the back of increases of 3.9% in Malaysia, 7.1% in Indonesia and 0.4% in Singapore.
Maybank saw loan growth of 1.9% in the second quarter in Malaysia, arising from improved growth in the corporate, consumer and SME segments.
"There's growth in all areas in Q2 compared with Q1. We're hopeful that 2H will be better," Farid said.
Maybank will remain vigilant and maintain proactive management of asset quality while building on its capital and liquidity positions to cushion itself from unanticipated events.