MIDF Research said loan growth outlook for the company is still positive.
PETALING JAYA: AMMB Holdings Bhd
’s results for the third quarter ended Dec 31, 2023 (3Q24) have come in within market expectations.
Moving forward, the company said its focus will be on the small and medium enterprise (SME) and mid-sized corporate segments.
According to RHB Research, the group plans to de-emphasise loan growth in residential mortgages due to less favourable margins.
“Management thinks retail non-performing loans are still on the rise and therefore increased its portfolio loan loss coverage (LLC) to 100%.
“Retail LLC, excluding the provisions, would have been 86% and group LLC 111% (2Q24: 96%),” said the research firm in a report following a briefing with the company’s management.
In the 3Q24, AMMB posted a net profit of RM543.4mil, bringing the sum for the nine-month period to RM1.39bil.
As expected by analysts, the bank utilised its RM538mil tax credit in a kitchen-sinking exercise in 3Q, chiefly to further solidify asset quality.
This in relation to its global settlement payment of RM2.83bil in 2021 on the 1Malaysia Development Bhd issue.
AMMB had applied to the Inland Revenue Board (IRB) for a tax deduction pertaining to the full amount of R772mil.
This was approved by the IRB and having set aside RM234mil as a tax credit earlier on, management recognised the remaining RM538mil in 3Q24, analysts noted.
Other highlights of the briefing is that management expects loan growth to pick up in calendar year 2024, particularly from the corporate segment, as drawdowns should occur gradually with the execution of public infrastructure projects.
On non-interest income, management does not expect the strong 3Q trading performance to repeat, but the quarter-on-quarter dip should be offset by a net interest income (NII) rebound, driven by loan growth and stable net interest margins.
A healthy Common Equity Tier 1 ratio of 13.4%, up from 12.7% in 2Q, puts the bank in a position to pay out at least 35%-40% of earnings as dividends by the financial year-end, added RHB.
Meanwhile, MIDF Research said loan growth outlook for the company is still positive.
“Management seems optimistic, observing good leading indicators in the SME and business-banking space though geared towards larger companies.
“They seem quite confident about the possibility of drawdowns in the large corporate space, with the possibility of larger infrastructure projects growing more certain by the day.
“Mortgage loan origination has been slowing down, but management is less concerned. Its margins are so light it barely impacts NII.”
However, the research house said management alluded to further tech costs to breach the mass market.
“Management’s guidance on loan portfolio direction is unchanged from the previous quarter. This time, however, AMMB did allocate RM112mil for intangible asset impairments.
“Management alluded to this as a sign to get rid of older devices and software to pave the way for newer fintech and technological options. They mentioned that excellent intellectual property is imperative in breaching the mass-market segment,” added MIDF, which keeps its “neutral” call on the stock with a target price of RM4.23.
