MAYBANK: Leading Bank Posts Solid Earnings, Navigates Softer Loan Growth and NIM Pressure
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading financial institution reported 2Q25 results that were broadly in line with expectations, showcasing resilience amidst a challenging operational environment characterized by muted loan growth and net interest margin (NIM) compression. The bank maintained its full-year 2025 Return on Equity (ROE) target and credit cost guidance, underpinned by prudent management and strategic initiatives.
Performance Review
The institution posted a net profit of MYR2.6 billion for the second quarter of 2025, marking a 2% increase quarter-on-quarter and a 4% rise year-on-year. This brought its first-half 2025 earnings to MYR5.2 billion, achieving 50% of both the institution’s and consensus full-year PATMI forecasts. The reported 1H25 ROE stood at 11.5%, comfortably tracking the bank’s target of ≥11.3%. Quarterly PATMI growth was primarily driven by a higher contribution from associates and a lower effective tax rate, while year-on-year earnings growth benefited from stronger non-interest income generated from treasury activities and insurance.
Operational Challenges
Despite the solid bottom line, the institution experienced a 4-basis point (bps) quarter-on-quarter (6bps year-on-year) decline in NIM during 2Q25, largely attributed to lower benchmark rates in Singapore and, to a lesser extent, Indonesia. Loan growth remained subdued, registering flat quarter-on-quarter and only 1% year-on-year expansion. This was mainly due to the overseas book, specifically Indonesia reducing its exposure to state-owned enterprises (SOEs) and the derisking of its Greater China corporate portfolio, compounded by adverse FX impacts. Domestic loans, however, showed robust growth of 7% year-on-year, primarily from community financial services.
Strengths in Asset Quality and Liquidity
Asset quality saw a slight tick-up in Gross Impaired Loans (GIL) by 2% quarter-on-quarter, influenced by judgmental triggers in the commercial segment and a Hong Kong corporate account being classified as impaired. Nevertheless, overall credit cost remained under control at 25bps, notably absorbing an additional c.MYR200 million in management overlays during the quarter, bringing the total overlay stock to MYR2 billion. Deposits grew 6% year-on-year, supported by healthy CASA expansion, ensuring a liquid balance sheet with a Loan-to-Deposit Ratio (LDR) of 90%.
Future Outlook and Analyst View
Looking ahead, management has revised its loan growth target downwards to approximately 3% from the previous 5-6% and now anticipates slight NIM compression for the full year, a change from earlier guidance of stable NIM. This revision considers year-to-date NIM pressures and the anticipated impact of a July Overnight Policy Rate (OPR) cut. However, the institution maintains its credit cost guidance at ≤30bps (excluding provision writebacks) and reaffirms its ROE target of ≥11.3%. Mitigating factors for NIM compression include diversifying funding sources beyond traditional deposits, proactive liquidity management in Singapore, and lower deposit costs in Singapore due to repricing. The bank has also tightened underwriting standards for reconditioned cars and observed improved collections and recoveries in July, suggesting no major asset quality issues are expected going forward.
Analysts at TA Securities maintain a “BUY” recommendation for the stock with a target price of RM0.25, representing a 25.0% upside. The last traded price was RM0.20.
