Banking:Foreign banks share the pain

Please read carefully the important disclosures at the end of this publication.

SECTOR UPDATE

11 June 2009

CIMB Research Report

NEUTRAL Maintained

Banks

Foreign banks share the pain

MALAYSIA

Winson Ng Gia Yann CFA +60(3) 2084 9686 - [email protected]

• Foreign boys not spared a 20% 1Q earnings decline. The combined net profit

of the five major foreign banks in Malaysia fell 19.7% yoy to RM824.6m in 1Q09, worse than the 14% slide recorded by the local banks. Clearly, the foreign boys are not spared the impact of the economic downturn, with earnings dents coming primarily from (1) a 1.3% yoy drop in net interest income, (2) 25% slump in non-interest income, and (3) 23% jump in loan loss provisioning (LLP).

• Foreign banks’ loan growth trailing local banks’. As expected, foreign banks recorded slower net loan growth of 3.1% yoy in Mar 09 compared to 12% for local banks’ domestic lending. The performance of foreign banks was pulled down by a 6.8% contraction in Citibank’s loan base, due primarily to a drop in property and business loans. Other major foreign banks registered single-digit loan growth ranging from 3.3% (for UOB) to 8.7% (for OCBC).

• Higher NPL ratios and credit costs. Against the backdrop of a grim economic

climate in 1Q09, all major foreign banks saw a rise in their net NPL ratios. The blended net NPL ratio of these five banks increased from 1.68% in Dec 08 to 1.81% in Mar 09, lower than the industry’s 2.2%. The hike in NPL ratios led to a 23% yoy surge in 1Q09 LLP.

• Better performance by local banks. In 1Q09, local banks outperformed their foreign peers in the areas of (1) net profit – 14.2% yoy drop vs. 19.7% for foreign banks, (2) non-interest income – down 7.1% yoy vs. 25.3% for foreign banks despite their higher exposure to poor investment banking income, and (3) NPL ratios – a few local banks, i.e. Maybank, Public Bank, AMMB and Alliance managed to contain their NPL ratios while qoq rises were evident for all the major foreign banks.

• Maintain NEUTRAL. Foreign banks’ poor 1Q09 financial results reflect the

adverse operating environment. We take heart in the outperformance of the local banks during these difficult times as it suggests that the improvements in local banks’ operations, especially in the area of risk management, have helped them to weather the economic downturn. On this note, we are maintaining our NEUTRAL stance on Malaysian banks as local banks may trump our and market expectations in countering the slowdown in loan growth and the uptick in NPLs. Our top pick for the sector remains Public Bank.

Sector comparisons

Target Core 3-yr EPS P/BV ROE Div

Bloomberg Price price Mkt cap P/E (x) CAGR (x) (%) yield (%)

ticker Recom. (Local) (Local) (US$ m) CY2009 CY2010 (%) CY2009 CY2009 CY2009

Affin AHB MK U 1.74 1.36 743 11.8 10.7 (0.2) 0.6 4.9 2.8

Alliance AFG MK O 2.29 2.40

1,014 12.6 10.1 22.3 1.2 10.0 2.4

AMMB Hldgs AMM MK U 3.36 2.92 2,616 13.0 12.0 11.1 1.1 8.9 2.4

EON Capital EON MK U 4.00 2.65 793 16.2 15.4 25.4 0.8 5.2 1.8

Hong Leong Bank HLBK MK U 5.75 5.70 2,598 10.3 9.7 9.1 1.5 15.7 5.5

Malayan Banking MAY MK N 5.65 5.40 11,433 14.1 12.1 (5.3) 1.5 10.9 5.0

Public Bank PBK MK O 8.85 11.40 8,936 12.6 10.4 8.5 2.8 24.0 8.5

Public Bank-F PBKF MK O 8.90 11.40 8,987 12.7 10.5 8.5 2.8 24.0 8.4

RHB Cap RHBC MK O 4.30 5.22 2,647 12.4 10.8 (2.2) 1.1 9.3 3.2

Simple average

12.9 11.3 8.6 1.5 12.5 4.4

O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell Source: Company, CIMB Research

[ 2 ]

1Q09 financial performance of foreign banks

In our 3 June 09 report, we analysed the weak 1Q09 results for local banks. We now direct the spotlight on the five major locally-incorporated foreign banks in Malaysia, i.e. Citibank, HSBC, Standard Chartered Bank (StanChart), United Overseas Bank (UOB) and OCBC Bank.

19.7% decline in 1Q09 net profit. The combined net profit of the five major foreign banks in Malaysia fell 19.7% yoy to RM824.6m in 1Q09, worse than the 14% slide recorded by the local banks. Clearly, the foreign boys are not spared the impact of the economic downturn, with earnings dents coming primarily from (1) a 1.3% yoy drop in net interest income, (2) 25% slump in non-interest income, and (3) 23% jump in loan loss provisioning (LLP).

Better performance by Singapore’s banks. Among the major foreign banks, only UOB and OCBC bucked the downtrend by racking up net earnings growth of 12-13% yoy. Their 1Q earnings were primarily supported by stronger investment and foreign exchange income, which more than offset a jump in LLP. In contrast, the other three foreign banks recorded net profit declines ranging from 18.6% (for Citibank) to 52% yoy (for StanChart), dragged down by lower non-interest income.

Figure 1: Banks’ net profit for 1Q08 and 1Q09

0 100 200 300 400 500 600 700 800

Alliance

EONC

Affin

StanC

UOB

CITI

AMMB

HSBC

OCBC

HLB

RHBC

MAY

PBB

BCH

RM m

1Q08 1Q09

Source: Companies

Figure 2: Banks’ 1Q09 yoy net profit growth

-99%

-52%

-17%

-1%

0%

3%

4%

12%

13%

15%

-34%

-27%

-19%

-18%

-100% -80% -60% -40% -20% 0% 20%

Alliance

StanC

MAY

HSBC

CITI

PBB

AMMB

Affin

HLB

RHBC

EONCAP

UOB

OCBC

BCH

%

Source: Companies

[ 3 ]

Figure 3: Banks’ 1Q09 qoq net profit growth

-98%

-47%

8%

9%

16%

56%

67%

93%

-10%

-10%

-20%

-25%

-28%

-31%

-100% -50% 0% 50% 100%

Alliance

StanC

MAY

AMMB

HSBC

HLB

EONCAP

PBB

CITI

Affin

RHBC

UOB

OCBC

BCH

%

Source: Companies

Negative factors

Lower net interest income

Dragged by margin compression. The total net interest income for the five major foreign banks even dipped 1.3% yoy in 1Q09 compared to 11% growth for the local banks. Net interest income was pulled down by a 24bp qoq slippage in the net interest margin (NIM) to 2.26% due to the initial impact of the rate cuts in Nov 08-Mar 09. This was more than offset the weak loan growth of 3.1% yoy in Mar 09. None of the foreign banks was spared as their NIMs were compressed 15-58bp. Among the five major foreign banks, Citibank had the highest NIM of 2.7% due to its focus on the higher-margin segment.

Figure 4: Banks’ 1Q09 net interest margin

2.70%

2.96%

1.83%

2.20%2.25%

2.19%

2.17%

2.16%

2.12%

2.46%

2.32%

2.26%

2.49%

1.81%

1.0% 1.5% 2.0% 2.5% 3.0%

StanC

HLB

PBB

Affin

Alliance

HSBC

OCBC

EONC

AMMB

RHBC

MAY

UOB

CITI

BCH

%

Source: Companies

Lower non-interest income

25% plunge in non-interest income. Foreign banks’ 1Q09 non-interest income was also disappointing, plunging 25.3% yoy to RM781.8m vs. a 7.1% slide for local banks. It was mainly pulled down by a 51.1% yoy slump in StanChart’s non-interest income due to its RM68m unrealised loss on revaluation of securities held-for-trading vs. a gain of RM169.9m a year ago. Other banks that saw a drop in non-interest income were Citibank (-39.7%) and HSBC (-27.3% yoy) due to poorer investment and foreign exchange income. UOB turned in a strong performance with a 38.1% jump in its non-interest income, lifted by an investment gain of RM38.1m compared to a loss of

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RM13.5m a year ago.

Figure 5: Banks’ 1Q09 yoy non-interest income growth

-51%

-47%

18%

38%

17%

-4%2%

4%

-40%

-29%

-27%

-26%

-11%-12%

-60% -40% -20% 0% 20% 40%

StanC

PBB

CITI

Affin

HSBC

Alliance

RHBCHLB

AMMB

MAY

EONCAP

OCBC

BCH

UOB

%

Source: Companies

Marginal growth in overheads

1Q09 overheads up 2.4%. The only area where foreign banks trumped the local banks in 1Q09 was cost discipline. Foreign boys’ 1Q09 overheads inched up 2.4% against 16.7% for local banks. Also, foreign banks’ 1Q09 cost-to-income ratio was 39.8%, way below local banks’ 49.9%. Local banks’ overheads were partly lifted by the consolidation of the expenditure of the overseas banks acquired by Maybank (MAY MK, Neutral) and Bumiputra-Commerce Holdings (BCHB MK, Not Rated) last year.

Even for their domestic operations, we believe that the growth of local banks’ overheads was also faster at around 10%, relative to the growth of their foreign peers’. This was mainly due to additional expenditure relating to (1) the transformation programme for a few banks, i.e. Maybank, AMMB Holdings (AMM MK, Underperform) and EON Capital (EON MK, Underperform), (2) continuous investments in IT infrastructure, especially risk management, credit scoring and data mining systems, and (3) rationalisation of branch networks. We believe the foreign banks are mainly focusing on several core high-yielding market segments. Without the need for further expansion, the foreign banks are able to practise greater cost discipline.

Singapore banks the most efficient. Among the major banks in Malaysia, OCBC and UOB had the lowest cost-to-income ratios of 30.5% and 33.6%, respectively in 1Q09, even below Public Bank’s 35.6%. Their superior cost efficiency was achieved through tight control on costs against continuing expansion of their toplines. In the case of Public Bank, its overheads were lifted by additional costs for (1) new staffers hired to expand its bancassurance business for its tie-up with ING, and (2) the branch expansion and aggressive marketing thrust of Public Bank (Hong Kong). Adjusting for these, the cost-to-income ratio for Public Bank would have been low at 30%, on par with the levels of the two Singapore-based foreign banks.

[ 5 ]

Figure 6: Banks’ 1Q09 cost-to-income ratio

62%

34%

30%

36%

45%

44%

43%

56%

53%

51%

48%

45%47%

56%

20% 30% 40% 50% 60% 70%

Alliance

MAY

EONCAP

BCH

Affin

AMMB

StanC

HSBC

RHBC

HLB

CITI

PBB

UOB

OCBC

%

Source: Companies

Slower loan growth

Foreign banks trailing local banks on loan growth, again. As expected, foreign banks continued to lose ground to their local peers in terms of loan growth. The total net loans of the big five foreign banks expanded only 3.1% yoy in Mar 09, compared to a pace of circa 12% for local banks’ domestic lending. The superior performance of the local banks, in our view, is attributable to their push for loan momentum and increased adoption of IT support systems, such as data mining and call centres, which used to be the key success factors for foreign banks. All these factors helped the local banks to exploit their far larger branch networks. The slower loan growth by foreign banks could also reflect the tightening of their lending practices due to their more stringent credit policies.

Decline in loan-to-deposit ratios. As the deposit growth of 9.6% yoy in Mar 09 was more than three times the expansion in loan base, foreign banks’ loan-to-deposit ratio dropped to 72.6% as at end-Mar 09 from 75.1% as at end-08 and 77.2% a year ago.

Foreign banks also experienced a slowdown in their loan growth from 8.7% yoy in Dec 08 to 3.1% yoy in Mar 09. This suggests that foreign banks were not spared the deceleration in the industry’s loan momentum from 12.8% yoy in Dec 08 to 10.9% yoy in Mar 09.

Weakest performance by Citibank. Among the major foreign banks in Malaysia, only Citibank’s loan base contracted 6.8% yoy in Mar 09 against 10.9% growth for the industry. Citibank was largely affected by the poor performance of property loans (residential mortgages -6.1% yoy and non-residential mortgages -22.3% yoy) and business loans (manufacturing and general commerce down by 19-20% each). This more than offset the 11.7% growth in the consumption credit. Apart from Citibank as well as Standard Chartered Bank which had a flattish loan base, other major foreign banks recorded single-digit annual loan growth of between 3.3% (for UOB) and 8.7% (for OCBC). Across the board, all foreign banks showed slower yoy loan growth compared to the pace three months ago.

[ 6 ]

Figure 7: Banks’ yoy loan growth in Mar 09

23%

34%

-7%

20%

9%

15%

18%

0%

3%

7%

7%

8%8%

0%

-10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

CITI

HLB

StanC

UOB

EONCAP

HSBC

RHBC

AMMB

OCBC

Affin

PBB

Alliance

MAY

BCH

%

Source: Companies

The strong loan growth for Bumiputra-Commerce and Maybank was due to the consolidation of the loan base of their newly acquired overseas banks. Excluding these, their loan growth would be about 14-18%.

Rising NPL ratios and LLP

Increase in foreign banks’ NPL ratios. Against the backdrop of a grim economic climate in 1Q09, all major foreign banks saw a rise in their net NPL ratios. The blended net NPL ratio of these five banks increased from 1.68% in Dec 08 to 1.81% in Mar 09, lower than the industry’s 2.2%. Their loan loss coverage of 90.9% in Mar 09 was also better than the industry’s 86.4%.

Figure 8: Banks’ net NPL ratio in Mar 09

0% 1% 2% 3% 4%

Affin

EONCAP

UOB

BCH

AMMB

RHBC

OCBC

Alliance

StanC

MAY

CITI

HLB

PBB

HSBC

%

Source: Companies

Lowest NPL ratio for HSBC. Among the major Malaysian banks, HSBC still had the lowest net NPL ratio of 0.79% in Mar 09. However, its gap with the second-placed Public Bank has narrowed because its net NPL ratio rose from 0.69% in Dec 08 while Public Bank’s was stable at around 0.85%. We also note that most foreign banks have lower-than-industry net NPL ratios, including Citibank (net NPL ratio of 1.43% as at end-Mar 09), StanChart (1.78%) and OCBC (2.12%). Only UOB had a higher net NPL ratio of 2.84% relative to the industry’s 2.2%.

Higher LLP for foreign banks. In tandem with the rise in NPLs, the total LLP for the major foreign banks surged 23% yoy in 1Q09. This was primarily lifted by the higher

[ 7 ]

LLP of UOB (+51%) and OCBC (+110.2%). Meanwhile, the LLP for the other three major foreign banks remained stable.

Figure 9: Banks’ 1Q09 yoy growth in loan loss provisioning

-100% -50% 0% 50% 100%

EONCAP

HLB

HSBC

StanC

CITI

PBB

Affin

RHBC

BCH

UOB

OCBC

MAY

AMMB

Alliance

%

Source: Companies

Valuation and recommendation Persisting systemic risks. The subdued 1Q09 results of the foreign banks reflect the difficult operating environment, which not only affected the local banks. The foreign banks were also hurt by the negative industry trends in 1Q including (1) slower industry loan growth of 10.9% yoy in Mar 09 compared with 12.8% yoy in Dec 08, (2) a rise in delinquency rates for a few banks’ loan portfolios, (3) weaker fee income, primarily from trade finance, and (4) margin compression due to the initial impact of rate cuts.

Maintain NEUTRAL. Foreign banks’ poor 1Q09 financial results reflect the adverse operating environment. We take heart in the outperformance of the local banks during these difficult times as it suggests that the improvements in local banks’ operations, especially in the area of risk management, have helped them to weather the economic downturn. On this note, we are maintaining our NEUTRAL stance on Malaysian banks as local banks may beat our and market expectations in countering the slowdown in loan growth and the uptick in NPLs. Our top pick for the sector remains Public Bank.

[ 8 ]

Figure 10: Comparison of banks’ Dupont ratios

FY07 Affin Alliance AMMB EON Cap HL Bank Maybank PBB RHB Cap BCHB

ROE (%) 6.5 5.8 -5.7 7.0 13.8 17.6 23.1 11.9 20.3

Tax & MI retention (x) 0.71 0.71 3.34 0.78 0.72 0.73 0.71 0.57 0.76

Overheads coverage (x) 0.61 0.31 -0.06 0.47 1.15 1.15 1.77 0.83 0.87

Cost efficiency (x) 0.51 0.53 0.45 0.44 0.42 0.43 0.33 0.44 0.47

Dependence on non-int inc (x) 1.68 1.61 2.21 1.58 1.51 1.72 1.58 1.61 2.03

Margin (%) 1.89 2.29 1.81 2.11 1.77 2.13 2.02 2.01 2.61

Equity multiplier (x) 9.28 13.56 15.24 12.99 14.68 13.34 17.52 17.41 12.36

FY08ROE (%) 6.8 16.8 11.2 4.2 15.3 15.2 27.3 14.1 11.9

Tax & MI retention (x) 0.72 0.76 0.56 0.64 0.73 0.72 0.76 0.74 0.72

Overheads coverage (x) 0.69 1.07 0.78 0.28 1.19 0.96 1.89 0.94 0.66

Cost efficiency (x) 0.52 0.46 0.46 0.53 0.42 0.44 0.31 0.44 0.53

Dependence on non-int inc (x) 1.57 1.60 2.07 1.47 1.46 1.77 1.54 1.55 1.66

Margin (%) 1.98 2.36 1.99 2.26 1.85 2.06 2.01 2.11 2.39

Equity multiplier (x) 8.44 11.93 13.56 13.23 15.34 13.66 19.62 14.11 11.89

FY09ROE (%) 4.8 8.6 11.5 5.2 15.9 10.2 24.0 9.1

Tax & MI retention (x) 0.75 0.76 0.71 0.74 0.74 0.69 0.70 0.74

Overheads coverage (x) 0.48 0.54 0.76 0.30 1.26 0.66 1.87 0.55

Cost efficiency (x) 0.54 0.53 0.49 0.48 0.41 0.52 0.30 0.49

Dependence on non-int inc (x) 1.83 1.60 1.84 1.49 1.46 1.80 1.56 1.79

Margin (%) 1.66 2.22 2.05 2.40 1.93 1.84 1.98 1.80

Equity multiplier (x) 8.19 11.12 11.61 13.77 14.63 12.84 19.83 13.96

FY10ROE (%) 5.1 10.4 8.1 5.2 15.6 11.5 25.6 10.1





Margin (%) 1.69 2.02 2.07 2.23 2.07 1.90 2.10 1.91


FY11ROE (%) 5.8 12.1 9.2 7.2 14.9 11.9 25.5 10.6





Margin (%) 1.75 2.32 1.87 2.20 2.08 2.00 2.07 1.93


Source: Company, CIMB/CIMB-GK Research

[ 9 ]

Figure 11: Key financial information

Banks 2007 2008 2009 2010 2011 Banks 2007 2008 2009 2010 2011

Net profit (RM m) BV/share (RM)

Maybank 3,178.4 2,928.2 2,324.0 3,133.6 3,487.2 Maybank 3.54 3.56 3.71 3.98 4.26

BCHB 2,793.3 1,952.0 BCHB 4.66 4.77

PBB 2,123.9 2,581.2 2,480.9 3,001.2 3,296.5 PBB 2.65 2.70 3.15 3.50 3.83

RHBCAP 712.8 1,048.7 730.2 860.7 980.3 RHBCAP 3.27 3.63 3.82 4.11 4.44

AMMB (282.5) 668.6 860.8 649.6 798.8 AMMB 2.25 2.63 2.84 3.07 3.31

HLB 620.8 741.8 851.6 916.9 962.6 HLB 2.92 3.22 3.55 3.90 4.27

EONCAP 217.1 133.8 170.7 179.9 263.8 EONCAP 4.52 4.66 4.99 5.10 5.44

Affin 251.8 292.8 218.4 240.5 291.4 Affin 2.85 2.95 3.11 3.25 3.43

Alliance 107.4 380.0 229.1 297.8 370.5 Alliance 1.60 1.67 1.78 1.90 2.07

Total 6,929.7 8,775.2 7,865.6 9,280.3 10,451.1

EPS (sen) Price/BV (x)

Maybank 59.4 54.1 37.2 44.2 49.2 Maybank 1.6 1.6 1.5 1.4 1.3

BCHB 85.2 57.8 BCHB 1.9 1.9

PBB 60.8 73.1 70.2 85.0 93.3 PBB 3.3 3.3 2.8 2.5 2.3

RHBCAP 35.8 48.7 33.9 40.0 45.5 RHBCAP 1.3 1.2 1.1 1.0 1.0

AMMB (13.1) 27.6 31.6 23.9 29.3 AMMB 1.5 1.3 1.2 1.1 1.0

HLB 39.3 46.9 53.9 58.0 60.9 HLB 2.0 1.8 1.6 1.5 1.3

EONCAP 31.3 19.3 24.6 25.9 38.1 EONCAP 0.9 0.9 0.8 0.8 0.7

Affin 17.0 19.6 14.6 16.1 19.5 Affin 0.6 0.6 0.6 0.5 0.5


Average 1.6 1.5 1.4 1.3 1.2

EPS growth (%) DPS (sen)

Maybank 12.1 (9.0) (31.3) 18.9 11.3 Maybank 57.5 49.0 24.4 29.3 39.1

BCHB 68.2 (32.1) BCHB 40.0 25.0

PBB 22.0 20.1 (3.9) 21.0 9.8 PBB 75.0 79.0 74.9 90.6 99.6

RHBCAP 49.2 35.9 (30.4) 17.9 13.9 RHBCAP 13.6 19.6 13.6 16.0 18.2

AMMB (171.2) 309.6 14.7 (24.5) 23.0 AMMB 5.0 6.0 8.0 8.0 9.8

HLB 12.9 19.5 14.8 7.7 5.0 HLB 24.0 24.0 30.2 32.5 34.1

EONCAP 2.2 (38.4) 27.6 5.4 46.6 EONCAP 10.0 5.8 7.4 7.8 13.3

Affin (7.8) 15.5 (25.4) 10.1 21.2 Affin 5.0 5.0 4.9 4.3 5.1

Alliance 152.0 205.2 (46.1) 30.0 24.4 Alliance - 6.3 6.3 5.1 8.0

Average 8.9 69.8 (10.0) 10.8 19.4

P/E (x) Div Yield (%)

Maybank 9.5 10.5 15.2 12.8 11.5 Maybank 10.2 8.7 4.3 5.2 6.9

BCHB 10.6 15.6 BCHB 4.4 2.8

PBB 14.5 12.1 12.6 10.4 9.5 PBB 8.5 8.9 8.5 10.2 11.2

RHBCAP 12.0 8.8 12.7 10.8 9.4 RHBCAP 3.2 4.6 3.2 3.7 4.2

AMMB (25.6) 12.2 10.6 14.1 11.5 AMMB 1.5 1.8 2.4 2.4 2.9

HLB 14.6 12.2 10.7 9.9 9.4 HLB 4.2 4.2 5.2 5.7 5.9

EONCAP 12.8 20.7 16.2 15.4 10.5 EONCAP 2.5 1.4 1.8 1.9 3.3

Affin 10.3 8.9 11.9 10.8 8.9 Affin 2.9 2.9 2.8 2.5 2.9


Average 9.2 11.7 13.2 12.0 10.0 Average 4.1 4.4 3.9 4.2 5.1


[ 10 ]

Figure 12: Key income statement information and ratios

Banks 2007 2008 2009 2010 2011 Banks 2007 2008 2009 2010 2011

ROE (%) Net interest margin (%)

Maybank 17.6 15.2 10.2 11.5 11.9 Maybank 2.37 2.31 2.07 2.15 2.26

BCHB 20.3 11.9 BCHB 2.88 2.62

PBB 23.1 27.3 24.0 25.6 25.5 PBB 2.11 2.10 2.06 2.16 2.13

RHBCAP 11.9 14.1 9.1 10.1 10.6 RHBCAP 2.15 2.27 1.93 2.03 2.04

AMMB (5.7) 11.2 11.5 8.1 9.2 AMMB 1.99 2.21 2.25 2.25 2.04

HLB 13.8 15.3 15.9 15.6 14.9 HLB 1.83 1.93 2.01 2.14 2.15

EONCAP 7.0 4.2 5.2 5.2 7.2 EONCAP 2.24 2.39 2.51 2.31 2.27

Affin 6.5 6.8 4.8 5.1 5.8 Affin 2.08 2.17 1.80 1.82 1.88


Average 10.0 13.9 11.2 11.4 12.2 Average 2.16 2.24 2.12 2.12 2.15

ROA (%) Growth in revenue (%)

Maybank 1.3 1.1 0.8 1.0 1.0 Maybank 9.5 8.8 0.8 20.2 10.6

BCHB 1.6 1.0 BCHB 41.0 (6.7)

PBB 1.3 1.4 1.2 1.3 1.3 PBB 19.7 12.3 10.6 13.9 6.9

RHBCAP 0.7 1.0 0.7 0.7 0.8 RHBCAP 11.4 1.7 4.8 14.8 5.9

AMMB (0.4) 0.8 1.0 0.7 0.8 AMMB 9.8 10.7 (2.4) 17.8 2.2

HLB 0.9 1.0 1.1 1.1 1.1 HLB 8.4 14.2 9.5 10.9 7.8

EONCAP 0.5 0.3 0.4 0.4 0.5 EONCAP 7.1 5.3 15.9 3.3 7.2

Affin 0.7 0.8 0.6 0.6 0.7 Affin 4.9 (0.3) (1.1) 5.7 6.9


Average 0.7 1.0 0.8 0.8 0.9 Average 11.3 7.9 5.3 12.0 8.8

Yield on earning assets (%) Non-interest income ratio (%)

Maybank 5.0 4.9 4.7 4.4 4.5 Maybank 32.3 33.6 33.4 36.4 35.7

BCHB 6.0 5.4 BCHB 47.3 34.2

PBB 4.9 4.7 3.8 3.9 3.9 PBB 27.2 25.3 26.3 25.2 23.7

RHBCAP 5.0 4.9 4.3 4.2 4.2 RHBCAP 28.4 27.5 32.0 31.8 31.2

AMMB 4.9 5.2 4.8 4.0 3.9 AMMB 38.0 36.4 28.2 33.6 35.0

HLB 4.5 4.3 3.9 3.6 3.6 HLB 25.7 23.7 23.5 22.6 23.0

EONCAP 5.1 4.9 4.5 4.3 4.3 EONCAP 24.6 19.7 21.3 21.8 21.4

Affin 5.0 4.7 4.1 4.1 4.1 Affin 29.3 23.3 30.1 29.6 29.0


Average 4.9 4.8 4.3 4.0 4.1 Average 28.6 27.0 27.1 28.1 27.5

Average cost of funds (%) Cost-to-income ratio (%)

Maybank 2.8 2.7 2.7 2.4 2.4 Maybank 42.8 44.2 52.5 50.7 50.0

BCHB 3.2 3.0 BCHB 46.9 53.2

PBB 2.8 2.7 1.8 1.8 1.9 PBB 33.1 31.2 29.7 28.5 28.3

RHBCAP 2.9 2.7 2.4 2.3 2.3 RHBCAP 44.4 43.9 49.2 45.6 45.7

AMMB 3.1 3.1 2.7 1.9 2.0 AMMB 44.8 45.9 49.3 46.4 48.5

HLB 2.8 2.5 2.0 1.6 1.6 HLB 42.3 42.1 41.1 39.5 39.2

EONCAP 3.0 2.6 2.1 2.1 2.1 EONCAP 44.2 53.0 47.6 48.7 48.1

Affin 3.1 2.7 2.4 2.4 2.4 Affin 50.8 51.6 53.6 54.0 53.4


Average 2.9 2.7 2.3 2.0 2.0 Average 44.5 44.8 47.0 45.1 44.3


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Figure 13: Key balance sheet information and ratios

Banks 2007 2008 2009 2010 2011 Banks 2007 2008 2009 2010 2011

Loan growth (%) Net NPL ratio (%)

Maybank 7.2 17.0 15.5 7.1 7.6 Maybank 3.1 1.9 4.0 4.1 3.9

BCHB 6.1 21.3 BCHB 3.8 2.3

PBB 20.0 19.2 11.6 8.4 8.0 PBB 1.2 0.9 2.5 2.2 2.0

RHBCAP 2.2 11.1 4.8 5.6 5.5 RHBCAP 3.4 2.2 4.2 4.0 3.7

AMMB 6.1 10.4 8.3 9.1 5.2 AMMB 6.2 3.7 2.6 4.4 4.8

HLB 10.6 9.1 4.8 6.0 6.6 HLB 1.9 1.4 3.3 2.8 2.4

EONCAP 3.7 5.0 1.6 1.4 3.4 EONCAP 4.1 2.3 3.8 2.8 1.6

Affin (0.5) 15.3 (4.5) (0.7) 5.3 Affin 7.9 3.2 5.5 5.6 5.2

Alliance (0.9) 16.3 19.8 12.6 15.6 Alliance 5.5 3.3 1.8 4.9 5.2

Average 6.1 12.9 7.7 6.2 7.2 Average 4.2 2.4 3.5 3.9 3.6

Deposit growth (%) Loan loss coverage (%)

Maybank 20.1 14.3 13.2 6.2 5.9 Maybank 80.3 99.2 65.6 65.4 67.8

BCHB 21.7 20.9 BCHB 69.3 88.1

PBB 24.1 16.9 5.2 12.3 9.1 PBB 119.5 159.7 64.9 78.6 89.9

RHBCAP 31.8 (2.4) 14.1 5.2 5.0 RHBCAP 71.4 90.3 64.4 69.0 73.9

AMMB 8.9 31.6 15.0 (10.4) 9.2 AMMB 56.6 67.3 75.1 58.4 57.3

HLB 28.1 10.3 1.2 6.0 5.7 HLB 86.5 103.9 60.2 70.6 80.6

EONCAP 6.0 9.7 6.7 11.8 8.5 EONCAP 63.0 84.0 73.2 87.5 101.7

Affin (0.5) 5.4 1.9 3.8 3.9 Affin 58.8 71.6 58.5 62.6 67.0


Average 15.8 12.2 9.6 6.5 7.8 Average 75.4 94.5 70.2 68.6 73.9

Loan-to-deposit ratio (%) Earnings assets / total assets (%)

Maybank 86.1 88.1 89.9 90.7 92.2 Maybank 89.5 88.4 88.2 88.2 88.3

BCHB 75.6 76.5 BCHB 90.6 91.4

PBB 71.6 73.0 77.4 74.7 74.0 PBB 95.6 95.8 96.9 97.1 97.3

RHBCAP 72.0 81.9 75.3 75.6 76.0 RHBCAP 93.3 92.9 94.2 94.4 94.7

AMMB 112.3 94.3 88.8 108.1 104.1 AMMB 90.4 89.9 92.3 91.5 91.9

HLB 55.8 55.2 57.2 57.2 57.7 HLB 92.4 96.1 99.0 96.9 97.1

EONCAP 102.8 98.4 93.7 85.0 81.0 EONCAP 94.1 94.9 96.6 96.8 97.0

Affin 67.6 74.0 69.3 66.3 67.3 Affin 91.3 91.4 92.7 92.9 93.0


Average 79.8 79.7 78.1 78.5 77.8 Average 92.4 92.9 94.5 94.2 94.4

RWCAR (%) Total loans / total assets (%)

Maybank 15.1 14.4 12.5 12.4 12.6 Maybank 54.9 61.2 60.2 60.5 61.3

BCHB BCHB 52.5 56.8

PBB 13.5 13.9 14.0 13.7 13.6 PBB 57.0 60.4 61.8 60.2 59.8

RHBCAP 12.1 11.1 10.6 11.0 11.4 RHBCAP 51.9 58.0 53.2 53.5 53.8

AMMB 12.6 13.5 15.5 14.8 14.6 AMMB 60.3 63.2 63.4 65.1 63.5

HLB 16.8 16.4 15.5 15.8 16.1 HLB 44.3 44.6 45.8 45.5 45.7

EONCAP 11.2 10.8 10.2 9.7 11.4 EONCAP 68.6 68.3 63.7 59.1 56.5

Affin 14.2 15.8 14.0 13.6 13.4 Affin 47.8 54.1 50.9 48.9 49.6


Average 14.0 14.0 13.4 13.2 13.5 Average 54.5 58.3 57.2 56.2 56.0


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Figure 14: Key information and ratios for loans and deposits

Banks 2007 2008 2009 2010 2011 Banks 2007 2008 2009 2010 2011

Gross loans (RM bn) Residential mortgages / total loans (%)

Maybank 147.5 171.2 198.3 212.7 229.3 Maybank 22.2 19.6 20.3 20.6 20.7

BCHB 101.0 122.5 BCHB 22.1 23.6

PBB 101.0 120.3 134.7 146.6 158.8 PBB 25.8 25.9 27.3 28.7 29.7

RHBCAP 56.8 63.2 66.3 70.3 74.5 RHBCAP 23.2 22.1 25.6 27.0 28.4

AMMB 50.7 55.0 58.8 64.7 68.2 AMMB 20.2 19.3 19.0 19.9 19.8

HLB 32.5 35.4 37.2 39.6 42.4 HLB 37.3 37.5 39.3 39.6 40.2

EONCAP 29.3 30.9 31.9 32.9 34.5 EONCAP 19.5 20.0 19.7 19.4 21.8

Affin 18.9 20.8 20.1 20.2 21.4 Affin 17.3 16.1 18.1 18.9 21.1


Total 451.2 513.3 567.1 609.1 654.4 Average 24.6 24.4 25.8 26.6 27.9

Gross NPLs (RM bn) HP loans / total loans (%)

Maybank 8.3 6.5 12.0 13.3 14.3 Maybank 12.0 14.1 14.2 15.8 16.6

BCHB 7.3 6.1 BCHB 12.8 10.8

PBB 1.4 1.2 4.0 4.3 4.6 PBB 21.5 20.6 20.1 19.6 19.2

RHBCAP 3.2 2.8 4.4 4.7 5.0 RHBCAP 11.6 10.8 11.3 11.1 11.0

AMMB 5.5 3.6 2.4 4.4 4.9 AMMB 42.5 42.3 40.8 41.2 40.6

HLB 1.0 0.8 1.6 1.7 1.9 HLB 13.7 14.2 13.0 12.4 11.8

EONCAP 1.7 1.5 2.5 2.8 2.9 EONCAP 30.1 29.3 28.9 28.7 28.0

Affin 2.7 1.2 1.9 2.1 2.2 Affin 31.5 30.5 31.6 31.8 30.8


Total 25.4 18.8 29.7 34.9 37.6 Average 21.6 21.2 20.9 20.9 20.6

Performing loans (RM bn) Consumption credit / total loans (%)

Maybank 139.2 164.7 186.3 199.4 215.0 Maybank 5.3 5.4 5.5 5.5 5.4

BCHB 93.7 116.4 BCHB 5.3 5.1

PBB 99.6 119.1 130.7 142.3 154.3 PBB 18.0 18.7 18.1 17.7 17.4

RHBCAP 53.6 60.3 61.9 65.6 69.4 RHBCAP 6.8 6.8 7.0 7.1 7.2

AMMB 45.2 51.4 56.3 60.3 63.2 AMMB 7.2 7.0 7.0 7.1 7.2

HLB 31.5 34.6 35.6 37.9 40.6 HLB 11.6 12.1 12.6 12.6 12.5

EONCAP 27.6 29.4 29.4 30.2 31.6 EONCAP 6.6 6.7 6.9 6.9 6.8

Affin 16.2 19.6 18.3 18.1 19.2 Affin 4.1 4.0 4.4 4.5 4.5


Total 425.9 494.5 537.3 574.2 616.8 Average 8.4 8.8 8.9 8.8 8.7

Total deposits (RM bn) Consumer loans / total loans (%)

Maybank 163.7 187.1 211.8 224.9 238.2 Maybank 39.6 39.0 40.0 41.9 42.8

BCHB 126.9 153.4 BCHB 40.2 39.5

PBB 138.8 155.6 170.7 191.7 209.2 PBB 65.3 65.2 65.5 65.9 66.3

RHBCAP 75.8 74.0 84.4 88.7 93.1 RHBCAP 41.5 39.7 43.8 45.3 46.6

AMMB 42.4 55.8 64.1 57.5 62.8 AMMB 69.9 68.6 66.8 68.2 67.6

HLB 56.7 62.5 63.3 67.1 70.9 HLB 62.7 63.7 64.9 64.6 64.5

EONCAP 26.9 29.5 32.1 35.9 39.0 EONCAP 56.3 56.0 55.6 55.0 56.6

Affin 25.6 26.9 27.5 28.5 29.6 Affin 52.9 50.6 54.0 55.2 56.4


Total 548.9 612.8 679.4 724.4 777.4 Average 54.6 54.4 55.6 56.3 57.2


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OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.

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UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months.

TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months.

TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

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CIMB-GK Research Pte Ltd (Co. Reg. No. 198701620M)

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RECOMMENDATION FRAMEWORK #2 **

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS

OUTPERFORM: Expected positive total returns of 15% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 12 months.

NEUTRAL: Expected total returns of between -15% and +15% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +15% (or better) or -15% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +15% to -15%; both over the next 12 months.

UNDERPERFORM: Expected negative total returns of 15% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 12 months.

TRADING BUY: Expected positive total returns of 15% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 3 months.

TRADING SELL: Expected negative total returns of 15% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Banking:Foreign banks share the pain

Economy & Finance

Transcript of Banking:Foreign banks share the pain