Malaysian banks look at cost cutting measures
Malaysian banks are looking at cutting costs due to the challenging economic environment, according to AllianceDBS Research, which has noted a flurry of rationalisation programs, such as  CIMB Group's investment bank rationalisation earlier this year, which has been followed by RHB Capital and Affin Holdings. It added that "loan growth has surprisingly been holding up well but competitive pressures and re-pricing of loans coupled with weak deposit growth and aggressive deposit campaigns to shore up liquidity has further exerted pressure to earnings. The rising loan-to-deposit ratio is another indicator to watch".

KUCHING: Malaysian banks are in high gear with cost-cutting measures as they manage costs in a challenging environment.

According to AllianceDBS Research Sdn Bhd (AllianceDBS Research), 2015 has seen a flood of job rationalisation programs, starting with CIMB Group Holdings Bhd’s (CIMB) investment bank rationalisation early this year, followed by its Mutual Separation Scheme (MSS) announcement in May 2015 applicable to employees in Malaysia and Indonesia.

“The take-up rate was close to 11 per cent,” it said.

AllianceDBS Research noted that the total estimated cost for the exercise was RM443 million with cost savings of up to RM291 million expected to be realised in financial year 2016 (FY16).

The research house further noted that RHB Capital Bhd (RHB) followed suit with the group’s Career Transition Scheme, launched in September 2015.

It added that a similar announcement was made by Affin Holdings Bhd (Affin) in September 2015 as well. Meanwhile, AllianceDBS Research noted that Hong Leong Bank Bhd (HLB) and Hong Leong Islamic Bank announced a Mutual Separation Scheme (MSS) for its Malaysian employees yesterday.

“The exercise aims to enhance productivity as well as efficiency and is voluntary in nature,” the research house said. The announcement came as a surprise to AllianceDBS Research as HLB’s cost-to-income ratio of 45 per cent is the second lowest in the industry (industry average is 50 per cent).

It further noted that the MSS is expected to be completed by end-November, and costs should be booked in the quarter ended December.

Since late 2014, AllianceDBS Research had said that the Malaysian banks were in for a tough year with net interest margin (NIM) compression the main dampener, besides weak capital markets as well as normalized provisions.

“Loan growth has surprisingly been holding up well but competitive pressures and re-pricing of loans coupled with weak deposit growth and aggressive deposit campaigns to shore up liquidity has further exerted pressure to earnings.

“The rising loan-to-deposit ratio is another indicator to watch,” it said.

The research noted that a slate of capital raising activities (HLB, Hong Leong Financial Group Bhd (HLFG) and RHB) would further dent industry return on equities (ROEs). It further noted that non performing loans (NPLs) remained on the watchlist. Overall, AllianceDBS Research said that both Public Bank Bhd and HLB have the advantage of a strong credit culture and liquidity.

“Assuming pricing is attractive, the investment fraternity should view HLB’s rights issue favourably,” it said.