MBSB aims for balanced portfolio for sustainability

KUALA LUMPUR (Nov 9): Malaysia Building Society Bhd (MBSB) is looking to maintain a well-balanced portfolio in terms of gross loans in order to ensure the sustainability of its business.

MBSB wants its gross loans to be composed equally of personal finance, mortgage, and corporate loans.

For 3QFY11 ended Sept 30, MBSB's gross loans were composed of personal finance (44%), mortgage (32%), corporate (23%), and wholesale (1%) loans.

"At the end of the day, I am looking at a balanced portfolio of at least a third each [in personal finance, corporate, and mortgage loans]," CEO Datuk Ahmad Zaini Othman told an analyst briefing on Tuesday.

"That kind of sustainability is important for MBSB [for] its long-term survival and having [the] ability to earn consistent income moving forward," he said.

Zaini is expecting MBSB to reach a balanced portfolio in 12 to 18 months. But he said this time frame will depend on factors such the landscape of its competitors.

Personal financing, he said, will continue to be a major contributor to the company's revenue and growth.

For 3Q, MBSB's personal financing loans grew by 98%, due to more attractive terms, including bundling loans with will writing and takaful products. Its mortgages contracted by 2.1% and corporate loans by 11.2%.

Zaini said if he is taking a short-term view of MBSB, "a very narrow, shallow and selfish view",  as he described it, he would just push personal financing.

"But if you look at the sustainability of the entity itself, that is not the way to do it," he said.

Asked what regulatory procedures are involved if MBSB converts to a commercial bank, Zaini said Bank Negara Malaysia would engage MBSB's intention and it will probably follow the Dafia, rather than the Bafia, regulatory framework.

Dafia is the Development of Financial Institutions Act, which regulates development banks, and Bafia is the Banking and Financial Institutions Act, which regulates commercial banks and other financial institutions.

He said the central bank will also look at what MBSB's gaps are in terms of capital assets, operations, business, and management.

Zaini said over the last three years, he has been trying to push MBSB to operate within the spirit of the central bank.

"So at the end of the day, if MBSB does decide or is chosen to go into a Dafia landscape, the closing of the gap is a lot easier," he said.

For 3QFY11, MBSB posted a 134% jump in its earnings to RM95.08 million from RM40.51 million a year ago. Its revenue rose 72% to RM372.67 million from RM215.77 million and earnings per share was 10.88 sen compared with 5.79 sen.

As at Sept 30, its loan-to-deposit ratio was 107%. Its annualised return-on-equity (ROE) for 3QFY11 stood at 45.14%, compared with 31.3% in 2010.

MBSB's deposits from customers grew to RM13.5 billion for 3Q compared with RM12.1 billion in 2Q. It held RM14.46 billion in loans, advances and financing with RM1.05 billion in shareholders' funds. At end-2010, loans totalled RM10.7 billion while shareholders' funds stood at just RM381.12 million.

MBSB has trimmed its net non-performing loan (NPL) ratio to 11% in 3Q, compared with 12.2% in 2Q. Zaini expects the net NPL ratio to come to a single digit next year.

For the cumulative nine months ended Sept 30, MBSB's revenue of RM1 billion surpassed its annual revenue of RM769.94 million in 2010. Its cumulative net profit of RM241.61 million also surpassed its 2010 annual net profit of RM146.03 million.

On MBSB's upcoming 4Q, Zaini said it will set a new benchmark for MBSB to start a new year in 2012.

MBSB shares closed three sen lower to RM1.74 yesterday. In a report note on Nov 1, OSK Research had a "buy" call on MBSB with a target price of RM2.70.