Published on 28 Mar 2019.
RAM Ratings today released its Banking Scoreboard and Islamic Banking Scoreboard to facilitate peer comparison of Malaysian banks. The former is a publication that compares the 16 largest commercial banks in Malaysia across 23 metrics while the latter juxtaposes all 16 domestic Islamic banks with 24 metrics. Both reports serve as a reference for the ranking and assessment of banks.
Key findings of RAM’s Banking Scoreboard include locally incorporated foreign banks’ (LIFBs) better profitability relative to their domestic peers. Three LIFBs (out of five in our sample) stand among the top five banks by pre-tax return on risk-weighted assets (RoRWA) and pre-tax return on equity (ROE) for the financial period ended 30 September 2018. The key factors for their outperformance vary and include a larger portion of higher-yielding unsecured retail loans (Citibank Malaysia), good cost efficiency (UOB Malaysia) and lumpy impairment write-backs (Standard Chartered Malaysia).
A large base of low-cost funding also bolstered the profitability of Citibank Malaysia and Standard Chartered Malaysia. The Banking Scoreboard shows that these two LIFBs, together with HSBC Malaysia, boast much higher proportions of current and savings account (CASA) deposits (56%-65% as at end-September 2018) relative to their peers and the corresponding industry average (26%). This reflects their group-wide cash-management franchises and international networks – all three banks are part of global banking groups. The funding cost advantage has propelled these three LIFBs to the top five spots in terms of net interest margins.
Our analysis also reveals that smaller banks are better-capitalised. As at end-September 2018, banks with less than RM100 bil of assets reported an average common equity tier-1 (CET-1) capital ratio of 13.5%, i.e. 0.5 percentage points higher than the average for banks with more than RM100 bil of assets.
Meanwhile, RAM’s Islamic Banking Scoreboard illustrates that Islamic banks are more cost efficient than their conventional counterparts. Most of the domestic Islamic banks hail from universal banking groups and are able to leverage their parents’ branch networks and backroom operations, thereby pruning their costs. For the financial period ended 30 September 2018, Islamic banks recorded an average cost-to-income ratio of 40.6%, in contrast to 45.6% for the universal banks in our sample.
The full versions of the Banking Scoreboard and Islamic Banking Scoreboard are available for download at www.ram.com.my.
Lim Yu Cheng, CFA, FRM
(603) 3385 2492
(603) 3385 2577
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