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BD: Malaysian banks being pushed towards mergers
19/11/2001 12:36 am Mon
Malaysian banks being pushed towards mergers
KUALA LUMPUR Ð A weakening economy is putting pressure on
Malaysian banks' earnings as bad debts swell, turning investors
off the sector and sparking talk of further mergers.
With a slowdown in exports expected to brake economic growth to
0.5 percent this year after a blistering 8.3 percent in 2000,
non-performing loans (NPLs) are on the rise.
"Despite efforts to accelerate the cleaning up of past defaulted
debt, the performing loan base system will be under stress due to
deteriorating economic conditions," said Devendran Mahendran,
a fixed-income analyst at HSBC.
Malaysia's bad loans, including those pending restructuring by
national asset management company Danaharta and defaulted
loans, amount to 85.5 billion ringgit ($22.51 billion), or 23.4
percent of its gross domestic product.
By the narrower measure of banks' gross NPLs, bad debts have
jumped to 17.9 percent of all loans at the end of September from
15.4 percent at the turn of the year.
International rating agency Fitch expects that ratio to jump to over
"This will affect the whole system, with substantial losses possible
for the weaker players," it said in a review two weeks ago.
"Further consolidation in the bank sector is probable."
Analysts poring over the latest quarterly results for top Malaysian
banks do not like what they see. Most have cut their investment
recommendations from "buy" to "sell" or "hold."
Malayan Banking (Maybank), Malaysia's largest bank, is bracing
for zero growth in loans and a margin squeeze for the financial
year ending next June, analysts said. Even Public Bank , the
best-managed domestic bank, faces a bumpy road.
"From our recent company visit, management expects operating
conditions to deteriorate in financial year 2002 and is only bracing
for an earnings recovery in 2003," Lim Beng Leong, research
chief at brokerage UOB Kay Hian, said of Public Bank.
For now, profits at the bank, Malaysia's fourth largest, are still
rising. It said last week its net profit grew 1.6 percent
quarter-on-quarter to 169.2 million ringgit for the three months to
September 30, within market expectations.
But earnings per share for calendar 2002 are forecast to fall to 14
cents a share from an expected 20 this year, said Lim, who rates
the bank a sell.
Things may be worse than the NPL figures suggest. Although the
total NPL figure of 85.5 billion ringgit is lower than the nearly 100
billion ringgit seen in 1999, after the Asian financial crisis,
analysts say the current figure could be understated.
That's because it excludes distressed debt of government-controlled companies such as national steel firm Perwaja and Malaysian Airline System. Ð Reuters