Harimau Capital

MALAYAN Banking Bhd president and CEO Datuk Seri Wahid Omarwalks into the meeting room on the 48th floor of Menara Maybank for an interview with StarBizWeekclutching the company's 2012 annual report and its financial statements.

Lugging the voluminous reports, weighing around 2kg in total, Wahid remarks that the 900-plus pages are a consequence of modern reporting requirements.

Maybe the reports are a little too meticulous and fastidious for all shareholders but they certainly give a detailed snapshot of just what a company has been up to and what their intentions are going forward.

The covers of both the magazine-styled reports trumpet the two key themes Maybank has achieved in the past year.

The first is its record profits. With the country's largest bank and biggest company on Bursa Malaysia posting a net profit of RM5.74bil, some of it was attributed to the other theme of the two-book annual report which is the growing contribution from its overseas operations. Some 30% of Maybank's profit came from its banking business outside of Malaysia.

“The macroeconomic environment has been very conducive in all the markets we are present in. We have positioned ourselves for growth. We're also able to do more with customers using our client coverage model.

“And on the Kim Eng side we have an enhanced distribution capability, which is why we were able to win all the big mandates and execute them successfully,” says Wahid.

The performance, and success, of the group's regionalisation strategy will certainly mean fewer upset shareholders, something Wahid had to contend with shortly after helming the bank.

“Back in 2008-2009 a lot of people were sceptical. I still remember every time we were overtaken by market cap the papers would carry that headline. In March 2009 our market cap was RM19bil. We were No. 4. Fast forward to now, we are No. 1 with a market cap of RM77.2bil,” he says.

Regionalisation paying off

Although some 70% of pre-tax profit is still from Malaysia, growth from its international business was faster. Pre-tax profit from Maybank's international operations rose 39% compared with 14.8% for the group. Revenue wise, the growth rate of international operations was 15.5% compared with 10.5% for Malaysia.

Maybank believes its international banking business will be able to contribute 40% to group pre-tax profit by 2015, and to achieve that the group is continuing its aggressive expansion in key markets abroad.

“Malaysia is too small for a bank like Maybank and the country needs a global bank with a strong footing in the region,” says Danny Wong, chief executive officer of fund management company Areca Capital.

He feels Maybank's execution of its regional expansion plan has been done well and is under control.

Wahid says that after Bank Internasional Indonesia was acquired in 2008, it embarked on a strategy to grow its branch network there fast.

“We had 220 branches then and close to 400 now. Our target is 450 branches. It is about increasing our reach and penetrating the more significant economic areas in Indonesia,” he says.

It's the same story in the Philippines where Maybank has been in business for the past 17 years but it has not all been smooth sailing. The initial years saw the group lose money and hence the hesitancy to expand its business there.

Times, though, have changed. The Philippines is booming thanks to a rise in domestic demand and Maybank has seen it fit to expand its banking operations there.

“Last year we pumped US$100mil in additional capital and have set a target to grow our branch network from 55 to 100 over the next two years, and thereafter doubling it another couple of years,” says Wahid.

In Singapore, its operations has hit RM1bil in pre-tax profit. It accounts for 46% of Maybank's international pre-tax profit and Wahid says the plan is to create a niche for its operations there.

“It is not our intention to take on the big boys, the homegrown banks, but rather to create enough critical mass to give us a 5% market share, which would allow us to mobilise deposits. We find that SME and business banking are the areas in which we can make a difference, as well as auto finance, where we are the market leader in Singapore,” he says.

With expansion comes the need for more capital. Maybank is keen to invest in Indonesia where prospects are mouth-watering and in order to meet an ever-increasing stringent regulatory capital requirements and to preserve the valuable capital within the group, it hatched a dividend reinvestment plan (DRP) some years back.

Reaction to that has been enthusiastic.

Previous DRP exercise has seen shareholders subscribe to, according to Maybank's annual report, 88.6%, 91.1%, 86.1%, 88.5% and 88.2% in the five DRPs so far. Maybank says the DRP will continue to be an important element in preserving equity capital and a means of giving shareholders an attractive dividend income.

Will the dividend reinvestment plan end?

“We will continue for as long as it is favoured by shareholders. We need to retain our profits to fund our growth,” says Wahid.

Domestically not sliding

While overseas expansion, faster growth rates and prospects of tapping into booming economies are certainly appealling, it's still the bread-and-butter business of the domestic market that home-grown banks need to pay equal if not more attention to.

That focus is never lost on Maybank but in previous years observers had felt that franchise was meandering along.

In 2010, Maybank restructured itself into three pillars to what Wahid calls the “New House of Maybank.”

They comprised community financial services, global banking and takaful and insurance.

The results of which, especially in the past year, was an eye-opener.

In 2012, Maybank's group loans rose by around 12% with loans in Malaysia expanding by slightly less.

In the Malaysian context, it's difficult for an aircraft carrier size of a bank to be nimble and quick. Giants are thought to move slowly but when they outpace the industry average, people wonder how that is possible.

“We're being more efficient. On the retail banking front, there were markets we were not very good at in the past, for example mortgage lending. What we did was to improve our distribution capability, work better with developers, make sure our product pricing is competitive, and serve customers better.

“In the areas we are doing well, it's a matter of making it better. This applies to auto financing, credit cards, as well as leveraging on firms likePos Malaysia, and reaching out to more customers.

“On the corporate front, we introduced our client coverage model in July 2010 and have improved on it. It has been very effective here in Malaysia and now we will expand it to Singapore, Jakarta, and the Philippines,” says Wahid.

The internal transformation has not gone unnoticed by the investment community.

“Their brand position and outlook has improved. Maybank is more competitive,” says Fortress Capital Asset Management (M) Sdn BhdCEO Thomas Yong.

He notes that there has been a big culture change within Maybank and that has made the bank better suited to survive in an increasingly competitive environment.

“It's a change for the better.”

For Wahid, the turning point was back in 2008 when Maybank was only growing by 5% per annum and its competitors by a far larger percentage.

“That's why we put the whole group on a burning platform. We realised we had to improve our financial performance very quickly. That was when we introduced Leap 30.

“We introduced new tools to make our sales more attractive. We saw the results, but had to ask ourselves whether this was sustainable on account that many people were burning the midnight oil. That's when we simplified the organisation into the New House of Maybank, made up of three pillars: community financial services, wholesale banking, and Etiqa insurance and takaful. Cutting across that were the Islamic banking operations.”

Looking ahead

Maybank has a vision of what it wants to achieve by 2015. It wants to be the undisputed largest provider of financial services in Malaysia, a leading wholesale bank in Asean and eventually expanding further into China, India and the Middle East.

It's looking at a global leadership position when it comes to Islamic finance and also the runaway leader when it comes to takaful and insurance in Malaysia.

Those are lofty ambitions. Wahid says the bank is “very clear on our longer-term aspirations”.

“We mentioned before that we believe in the future of Asean. Come December 2015, we want to make sure Maybank is one of the regional banks that is well-connected, capitalised, and managed. To be the leading regional financial services provider, that's our goal.”

There are nonetheless gaps that exists in the current business model.

Maybank needs a bank in Thailand, which is high on Wahid's agenda, and to grow its asset management business which right now lags behind some of the other larger financial institutions in the country.

The performance of Maybank in recent years, especially last year, has allowed the bank, what some may say, to shed its conservative veneer.

Wahid disagrees though, saying Maybank is not conservative per se.

“We are aggressive in pursuing business opportunities. But as much as we're expanding, we don't expand at all costs. Everything is measured and calculated. Our asset quality has continued to improve with net impaired loans of below 1%.”

Given the success the bank has reaped last year and the direction it is heading, maybe shareholders in the future will not be brandishing brickbats during a future EGM to approve a big purchase.

Maybe then, the size and details that are contained within future annual reports will be even larger.