BNM’s proposed 80% mortgage cap should not be a hard rule: AMMB

While a proposal by Bank Negara Malaysia (BNM) to cap the loan-to-value ratio (LVR) for mortgages at 80% is considered good to reduce risks and prevent a housing bubble, implementing hard rules should not be the only way, according to AMMB Holdings Berhad group managing director Cheah Tek Kuang
The latest edition of The Edge business weekly reported that Bank Negara had written to financial institutions to obtain feedback on the possibility of capping the LVR at 80% to avert a potential property bubble. The proposal has yet to be implemented.

“When you come up with a hard rule and say okay, only 80% (financing) but if someone is a good customer with us, (we) should make exceptions to rule,” said Cheah at the group’s AGM yesterday.

Furthermore, Cheah believed that island countries such as Hong Kong and Singapore that have applied ceiling values to their LVR are justified as land there is limited.

“If you look at Hong Kong, it has reduced financing for second loan from 70% to 60%. In Singapore, there are a lot of discussions on financing properties.

“In those two island countries, land is limited, so prices have shot up compared to Malaysia. That is the reality as well”, Cheah said.

“Bear in mind that the cost of capital now is high and it affects shareholders as well as borrowers. Some banks may want higher margins. But to be fair to the central bank, it is still good to have discipline. We don’t want to run into another 1997 (crisis),” he said.

Loans for residential and non-residential properties make up 16.9% and 5.7% of the group’s loan portfolio of RM64.4 billion for the financial year ended 31 March 2010 (FY10).

For this year, Cheah said the group plans to improve existing lines of business while creating new ones such as the newly granted takaful family licence. “Of course, for the first year we don’t expect good results for takaful. We are pretty serious about this business. The potential is huge. We’ve only been competing in the conventional insurance space, said Cheah.

In a joint venture with Friends Provident Ltd, AMMB was one of the four licensees to be granted a takaful licence on Wednesday. It plans to roll out the “AmTakaful” product by June next year with an initial capital of RM100 million.

On the possibility of another interest rate hike, group managing director and chief financial officer Ashok Ramamurthy said the group’s strong financial performance in last financial year means it has a stronger balance sheet that could absorb rising interest rates.

In FY2010, net profit hit the RM1 billion mark, rising by 17.2% year-on-year (y-o-y) to RM1.01 billion, due to strong growth across all divisions.

On y-o-y basis, its investment banking profit surged 142.3% on the back of improved capital and equity market conditions, life assurance and general insurance had a combined profit growth of 79.2%, while corporate and institutional banking’s profit grew 21.9%.

The group’s biggest bottom-line contributor — business and retail banking — grew by 10.8% and 8.1%, respectively.

Return on equity was in line with management’s guidance of 11.5%, representing a small reduction of 0.2% y-o-y due to new share issuances, while return on assets rose to 1.13% from 1.04% in FY2009. Earnings per share rose 9.8% to 34.7 sen.

AMMB’s net loans increased 13.1% y-o-y to RM64.4 billion, customer deposits rose 9.6% y-o-y to RM70.3 billion bringing the loan to deposit ratio to 91.7%, while CASA (current accounts savings accounts) rose 23.9% y-o-y to RM8.37 million.

Gross non-performing loans (NPL) fell to 2.8%, below the industry’s average, while net NPL was at industry level of 1.5%. Its capital ratios were also strengthened with Tier-1 ratio at 10.3% compared to 9.7% in FY2009, core capital ratio at 8.2% from 7.8% in FY2009 and risk-weighted capital adequacy (RWCA) ratio at 15.8% from 15.2% in FY2009.

The group’s total assets stood at RM96.5 billion.

AMMB’s shares rose nine sen to RM5.89 yesterday, with 8.6 million shares traded.




Written by Aishah Mustapha
This article appeared in The Edge Financial Daily, September 3 2010.