LAYSIA: Robust Half-Year Earnings Buoyed by Strategic Efficiency

A leading financial institution has reported a strong performance for the first half of FY26, with earnings rising by 10.6% year-on-year, broadly meeting market expectations. The positive results were primarily driven by robust income growth and stringent cost management, signaling a healthy operational environment despite some prevailing market headwinds.

Performance Highlights

The group’s net profit reached RM405 million, representing a significant portion of both the full-year forecast (52.2%) and consensus estimates (51.4%). This growth was underpinned by a 4.0% year-on-year increase in Net Interest Income (NII), complemented by a substantial 30.7% surge in Non-Interest Operating Income (NOII). The NOII increase was largely attributed to higher trade fees, FX sales, treasury gains from FVOCI, and banking service fees.

Operational efficiency remained a key theme, with a positive Jobs-Added-Wage (JAW) ratio of 0.3% year-on-year, indicating that revenue growth outpaced costs. This helped to maintain the Cost-to-Income (CTI) ratio at a healthy 46.4%, well within management’s guidance. Quarterly performance also showed a 4% increase in earnings, supported by modest income growth and lower provisions.

Financial Details and Challenges

While overall performance was strong, loan growth moderated to 8.1% year-on-year. Management expressed a cautious approach towards certain SME and corporate segments, as well as unsecured consumer lending, citing rising business costs. Net Interest Margin (NIM) experienced a slight decline of 10 basis points quarter-on-quarter, settling at 2.32%. This compression was influenced by a July OPR cut, a higher fixed deposit mix, and prefunding strategies ahead of year-end deposit competition. Consequently, the Current Account Savings Account (CASA) ratio dipped to 39.1% as fixed deposits grew faster than CASA.

Credit Quality and Future Outlook

Credit quality showed signs of improvement, with the Gross Impaired Loan (GIL) ratio easing to 1.91%, although still higher than the industry average of 1.4%. The net credit cost annualized fell to 46 basis points from 57 basis points in the previous quarter, indicating a positive trend. While still above the 30-35 basis points guidance, management anticipates a further decline in the second half of the fiscal year, driven by slower loan growth, a focus on quality credit, and enhanced recovery efforts.

The group continues to maintain significant management overlays, amounting to RM130.5 million, providing a buffer against potential risks. Despite a rise in consumer delinquencies from classic mortgages and Alliance One Account, SME loans held steady, and commercial and corporate delinquencies declined due to loan repayments. Management reiterated its commitment to selective loan growth, prioritizing quality and sustainable expansion. The institution remains broadly on track to meet its FY26 targets, projecting a resilient outlook for the upcoming period.