Household loan demand to moderate amid rising inflatin

Focus MALAYSIA WEEKLY ISSUE 055

THE WEEK OF DECEMBER 21 – DECEMBER 27, 2013

Review 2013 / Outlook 2014 -- BANKING

By: FocusM

Ashok Ramamurthy
Group Managing Director,
AmBank Group

How did 2013 pan out for Ambank Group?

It was another year filled with excitement and some challenges.  Despite slower economic growth and intense competition, we made good progress in our FY2014-2016 Strategic Agenda, delivered stronger earnings – with our first half FY2014 profits up 10.1% from a year ago – and achieved most of our FY2014 guided key performance indicators.

Our integration with our two new businesses acquired, Kurnia Insurans and MBF Cards, is on track and they have contributed to the performance of the Group.

We are seeking a new strategic partner to build scale in life assurance and the family takaful business in progress.  We have completed Phase Two of the bidding process in our search for a new strategic partner for the life and family takaful businesses, and aim to finalise a buyer by the end of the year.

Most recently, Phase One of our new core banking platform went live.  This investment will create a scaleable and robust platform for growth.  Its functionalities are expected to pave the way for delivering operational improvements, an enhanced customer experience and revenue growth.

As a testament to our strong governance and improved financial fundamentals, Rating Agency Malaysia (RAM) upgraded AMMA Holdings Bhd and all three of our main subsidiaries, AmBank (M) Bhd, AmIslamic Bank Bhd and AmInvestment Bank Bhd, credit ratings to AA2/P1 with a stable outlook.

What are your expectations for your company and the banking sector in 2014?

For AmBank Group:

·   To complete our integration of two newly-acquired businesses, Kurnia and MBF Cars, and seek a new strategic-partnership for our life and family takaful businesses;

·  Stronger earnings as we progressively deliver on our five strategic themes.

To recap our strategic agenda: (1) Integrate acquisitions and deliver synergies; (2) Simplify business model and streamline processes; (3) Accelerate organic growth with focus on cross-selling, flow business, small business, and emerging affluent customers; (4) Build scale in specialist businesses with partners; (5) Optimise capital and holding-company structures.

For the banking sector, we expect modest growth in line with economic growth (our in-house economist expects the Malaysian economy to grow 4.8% in 2014 from 4.6% in 2013), supported by stronger capital-market activities as Economic Transformation Programme (ETP) projects pick up.

What do you think will be key events and challenges that will shape the banking sector’s prospects next year?

The Group expects the domestic economy to pick up in 2014 due to improved global trade and supported by private expenditure.  Nevertheless, global sentiment underpins the domestic economic outlook and we expect headwinds in the banking environment to moderate growth.

Retail loan growth could moderate on the back of easing consumer spending from the rationalisation of subsidies and responsible lending measures to address household debt.  Margin compression will continue from increasing competition for deposits, loans and other financial products.  Asset quality trend may come under pressure from inflation, resulting in increased provisions.

While we are conservatively placed to handle volatility, these potential challenges will need to be carefully managed to avoid a material impact on financial performance.  I expect the banking sector to continue to increase loans / financing, adversely affected by margin pressure.  Overall, the banking sector should continue to deliver improved profits, though the pace of growth is expected to moderate compared with the preceding two to three years.