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Economy? Bubble? Look at banks, just numbers.

Posted in Equity / Stock

Is the Malaysian economy in trouble? Depends on who you ask these days. One end says it is about to collapse. Another side says this is the strongest ever. Well, whether about to collapse or the strongest ever, life goes on for most working Malaysians like me. I still have to work hard and hope that my company does not fire me. Many applied to be separated from their company! Please do remember that if we buy the wrong property at the wrong price, it will still be a disaster for us regardless yeah. Coming back to those signs of property bubble bursting. Remember them? Spotting signs of a property bubble, 3 points I briefly shared these three points with the crowd at the recent iPropertycom’s Home & Investment Fair in MyTown Mall. Most of them nodded their heads, so I assume they understand and would start looking at the signs by themselves? 😛

One major sign for potential property bubble bursting is always the Non Performing Loan (NPL) numbers for banks. It (NPL) will start going up because when the property prices has gone up too high, everyone is stretched to their limits in paying for them and some would start to miss payments. After some people start to miss payments due to extremely high property prices, these would be classified under the NPL and the banks would start to worry. Many banks would start to be even more stringent in lending and this would worsen the situation because people who genuinely may not get the ‘bridge’ (loan) they needed. Anyway, as of currently, this is not the case, yet. Let’s look at a few announcements by the banks recently shall we.

Maybank posts record profit but warn of EXTERNAL uncertainties ahead. Here’s one recent article in TheStar.  For the first time ever, Maybank breached the RM7 billion profit level. Pre-Tax profit is at RM10.1 billion. Maybank’s full-year payout to shareholders stands at RM5.90bil or 78.5% of net profit, which translates into a dividend yield of 5.6% – one of the highest among banks in the region.

Public Bank also posted a fresh record profits too. RM5.47 billion. Here’s that announcement in TheStar. Pre-tax profit wise, it was also highest ever, at RM7.2 billion. It said, “With the resilient performance in 2017, the Public Bank group continued to achieve a high net return on equity of 15.8% whilst maintaining its low gross impaired loan ratio of 0.5% and an efficient cost-to-income ratio of 31.9%. ” Public Bank’s cost-to-income isonly 31 percent and this is by far lower than the industry’s average cost-to-income ratio of 45.8%.

CIMB also posted a good set of numbers for FY17. Net profit is at RM4.47 billion while pre-tax profit is at a record high at RM6.11 billion. Reports in TheStar. The group’s cost-to income ratio improved to 51.8% compared with 53.9% in FY16. Its group CEO Tengku Datuk Zafrul Aziz said, “This year will also see us complete our presence in all 10 Asean countries with our first branch opening in the Philippines by end-2018. We are also excited to launch our digital banking proposition in Vietnam in 1H18. (VERY GOOD…)

Good to note that the industry’s top 3 local banks are all posting new records. When we look at the cost-to-income ration, it does seem that some banks may have to do a bit more to catch up with the rest. Frankly, this is no longer just competing against the local banks. Yes, I firmly believe that local banks would have to do what many other international foreign banks have been doing; cutting costs continuously because of technology. All the best in getting your loans approved yeah. Without more growth from the domestic market, there’s no way for these banks to report another set of awesome results for FY18. Yes, it’s clear that where the banking sector is concerned, it is not going to be the trigger for the next property bubble crisis. Cheers.

written on 3March 2018

Next suggested article: 71 pct of loans to first-time buyers. Positive.

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