An analyst with a local research house said Malaysian banks were less attractive to foreign institutional investors due to their high valuations. Valuations of local banks are even higher than that of its peers in Singapore and Thailand, the analyst pointed out.
“Bank valuations have come down at the moment, as they are merely reflecting the conditions of the current market,” the analyst said, adding that investors would have a better indication of bank valuations in the third quarter, as banking groups’ performances would be more visible during this period.
In comparison, Singapore’s UOB Bank was trading at 1.88 times book value and Thailand’s Bangkok Bank was trading at 1.48 times. While Abu Dhabi Commercial Bank (ADCB) recently took up a 25% stake in RHB Capital Bhd from the Employees Provident Fund (EPF), MIMB’s Pong said this was an exceptional case as Abu Dhabi was keen on the resulting Islamic banking opportunities.....
An April 14 report by Macquarie Research underscored investor concerns about the Malaysian banking landscape. Based on feedback on Asean banks from Macquarie’s clients in the US, they were most receptive to Thailand banks and least keen on Malaysian banks, according to the report. “Moderating loan growth, falling margins, weaker non-interest income and risk to higher operating expenses underscore the pressure on underlying profits. "This situation is compounded by the uncertainty posed by the challenging political landscape that could potentially delay the various government initiatives (the Ninth Malaysia plan and civil servants pay hike),” said Macquarie in the report. The research house named Public Bank and AMMB Holdings Bhd as its sole outperformers. Investors were seeking political clarity following the recent elections in Malaysia, with some wondering why Maybank had paid an exorbitant sum for Bank Internasional Indonesia, said Macquarie. The research house said it preferred Thailand due to a favourable top down assessment arising from political stability and anticipation that it will likely be the sole country to see faster gross domestic product (GDP) growth this year. We believe banks are a good way to play the anticipated economic recovery, where we see a strengthening domestic demand story encapsulated by a rebound in consumer spending and spilling over to private and government spending. We expect faster loan and revenue growth (in Thailand),” Macquarie said. The research house also liked Singaporean banks due to its strong fundamentals despite pressure on margins and loan growth. It expected economic resiliency in the Philippines despite concerns over politics, inflation and remittance flow; and expected strong loan growth. Indonesian banks meanwhile, despite inflation concerns, remained attractive due to the lowest loan penetration, fastest loan growth, fattest margins and highest return on equity (ROE) in the region, Macquarie said.
MyTake: Are our banks really that expensive? Not all of them. In reality if you take Public Bank as a representive Malaysian Bank to compare with the rest of the banks, we are indeed expensive. But if you break down the local banks, you will notice that the sector's average P/BV for CY07 is 2.5X while average ex Public Bank and Maybank is 2.1X. The ROE CY07 sector's average is 12.1% while ex Public Bank and MayBank is 9.3%. (The full analysis of banks' key ratios is shown below). I believe most of the emerging markets' banks are having high P/BV mainly because of the future growth potential related to the banks and the economic conditions of countries that they are in. Take note of the following P/BV. In China, P/BV of banks range from 3.3X - 5.4X(Bloomberg survey) while in Indonesia the top 4 public listed banks are trading at 3.9X. I would consider the average Malaysian banks fairly priced based on the current market condition. Malaysian banks like many other banks in countries eg Singapore are curently facing increasing saturated market with lower interest margin, loan growth moderating, weaker interest income and probably higher operating cost but the assets quality is still good, thanks to the watchful eyes of Bank Negara . But still the growth and stability in the industry are still there. For example, the estimates for the banking industry CY08 are as follows:- loan growth(+8.5%), NPL(3%), Loan loss coverage(80%), Risk-Weighted Capital Ratio(RWCR) (13%) and fee income(+10%). In view of the "slower" projected growth, many of the Malaysian banks have ventured overseas especially in China, Indonesia, Pakistan and other emerging markets. The long term positions from venturing into emerging markets (egs Public Bank into China, Hong Kong, Vietnam and Cambodia, Hong Leong Bank into China, Maybank into Vietnam, Indonesia and Pakistan and Commerz into Indonesia and Vietnam) may pay off and value enhancing eventually.
* Wespac Banking makes takeover offer for St George Bank today valued at AUD15b. Upon takeover, Wespac will be one the largest lending and wealth management bank in Australia.
* China's April CPI was reported at 8.5% from a year earlier (estimates earlier was 8.1%) due to increased in food prices, rising commodity, energy and labour costs. The benchmark lending rate is now at a 9 year high of 7.4% after 6 increases last year. Effective May 20, the Banks' Reserve Requirement will rise to 16.5% of deposit(previous 16%) to reduce money supply and counter inflation.
* A magnitude 7.8 earthquake was recorded near Chengdu today. Estimated deaths unknown yet. For information, in 1976- an earthquate with 7.5 magnitude struck near Tongshan killing 255,000 people. This earthquake took the most lives in the last 400 years and the 2nd highest in recorded history.
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