Key Indicators That Reflect Bank Performance?

 

On March 10, 2021, Syahirah Syed Jaafar of theedgemarkets.com reviewed how top banks fared in 2020. Banks were impacted by low in­terest rates and increased provisions with loan moratoriums on their books. Many banks are now expected to perform better in 2021. This is with recovery in net interest income growth and a decline in loan loss provisioning.

The Edge took a look at some key finan­cial indicators of the top five banks in Ma­laysia for the financial year 2020 (FY20) and the results were as below.

 

Loan growth

Most banks recorded loan growth higher than the industry average of 3.4% in FY20, contributed from both the household and business segments. Malayan Banking Bhd (Maybank), Public Bank Bhd and RHB Bank Bhd recorded loan growth of 4%, 5.4%, 4.5% respectively for their domes­tic operations.

Hong Leong Bank Bhd, whose FY20 ended on June 30, 2020, recorded a loan growth of 6.1%. CIMB Group Holdings Bhd meanwhile, was the only exception as it saw a decline of 1%. With 2020 behind, banks maintained a conservative stance moving into 2021, with their loan growth targeted this year of between 4% and 5%.

CGS-CIMB Research said it has low­ered its loan growth forecast on banks to between 2% and 3%, from 4% and 5% previously, after it lowered its gross do­mestic product (GDP) forecast to 5% from 7.5% previously.

Overall, loan growth for the month of January inched up to 3.8% from 3.4% in December, supported by the household and business segment.

Asset Quality

Higher provisions in FY20 did put a strain on banks’ asset quality. However, data shows that gross impaired loans (GIL) ra­tio actually decreased across most banks, except for CIMB Group, as it was affect­ed by exposure to the oil and gas sector

Nonetheless, Malaysian banks still have strong capitalisation and loan-loss cover­age to buffer losses, Moody’s Investors Service said.

On average, it was noted that the five banks’ Common Equity Tier 1 capital ratio was stable at around 14.4% at year-end 2020, compared with 14.3% a year earlier; while the average loan-loss coverage ratio im­proved to 148% from 94%, as a result of efforts to front-load provisions.

 

Repayment Assistance

The government’s Targeted Repayment Assistance scheme was announced in No­vember last year, to support borrowers whose repayment capacity was affected due to pandemic-related disruptions to their incomes.

Maybank, Public Bank, RHB Bank and CIMB each reported an increase in loans with reduced or deferred instalments — these are loans that benefit from pandem­ic-related repayment assistance.

The proportion of loans under assis­tance for these banks increased to 13% on average in February from 11% in No­vember 2020, said Moody’s. Meanwhile, Hong Leong Bank’s loans under assistance declined to 7% in Janu­ary, from 8% in November 2020.

It noted that the increase in loans un­der assistance is consistent with increased unemployment and underemployment re­ducing borrowers’ incomes.

 

ROE

Public Bank’s ROE of 11.2% is a spike compared to the rest of its peers, which could be explained by lower provisions incurred coupled with better performance in non-interest income, one analyst com­mented anonymously.

Meanwhile, CIMB reported the low­est among the lot of 2.1% in FY20, as it was affected by weaker performance in Indonesia, the analyst added.

A rough calculation shows that the average ROEs for Malaysian banks are currently at about 7%, however analysts are expecting this average to rise to nearly 9% by FY22.

 

Dividend yield

Maybank’s dividend per share (DPS) in FY20 amounted to 52 sen, translating to a yield of 6.4% and the highest amongst its peers, while the rest saw a yield of be­tween 1% and 3%.

Banks are built on trust and conservative principles. In a crisis, they are the first to “fold” the umbrella – leaving many customers vulnerable. Thanks to BNM and Government intervention this has been minimised in Malaysia. Many customers had hoped for an extension of the loan moratorium by a further six months. But this was not to be! Why? Because banks must have objected vehemently.

Despite the above, the top banks are still reporting earnings of above RM1.0 billion – compared to losses incurred by SMEs in hotel, retail or tourism sectors. In fact, many SMEs, probably over 60,000 have folded-up. And Ambank still survives after paying the Government RM2.83 billion for blunders under 1MDB.

This present crisis is not a financial one, it’s a health pandemic that impacted Main Street and eventually the financial sector. Hence, banks are safe for now but I don’t understand why they are “mollycoddled” by the authorities. Perhaps they have good connections in high places?

Reference:

Hit on multiple fronts in 2020, here are 5 key indicators to gauge how top banks fared, Syahirah Syed Jaafar, theedgemarkets.com, March 10, 2021

Back to Normal? Not This Year!

 

The 2021 KPMG CEO Outlook Pulse Survey found that majority (45%) of the 500 CEOs around the world are anticipating businesses returning to ‘normal’ only in 2022, whereas a significant portion (24%) believes that their businesses are forever changed.

Nearly one-third (31%) of CEOs think that their businesses will return to normal in 2021. This is at global level. In Asia Pacific, on the other hand, only 6% anticipate that it will happen this year. Globally, 9 out of 10 CEOs intend to ask employees to report when they have been vaccinated, which will help organizations consider measures to protect their workforce.

Unsurprisingly, CEOs want to be confident that their workforce is protected against this virus before making any major business decisions. The survey found that more than two-thirds (71%) of CEOs will look for a successful Covid-19 vaccine rollout, where at least half of the population is vaccinated, before asking their staff to return to office, while 68% of CEOs want to see government encouragement/ enablement.

The pandemic prompted many organizations to rethink their existing strategies and commit to digitalization. CEOs are planning to invest more in technologies such as data security measures, digital communications, automation and customer-centric technologies. It was observed 69% of the CEOs say they are putting more money into accelerated technology investments as a result of the pandemic implications. Nearly half think technology will help with cost savings and believe that customers are more open to these investments due to the pandemic.

While the world may never return to the way it was before the pandemic, we must continue to adapt and stay ahead of the waves of change. CEOs need to better understand the needs of their employees, communities, customers, partners and investors. Why not take this as an opportunity to redefine what the new normal should look like?

 

Reference:

1.     KPMG 2021 CEO Outlook Pulse Survey

2.     KPMG: Nearly half of global CEOs don’t expect a return to ‘normal’ till 2022, 29 March 2021, MalayMail

Can We Re-Balance Taxes?

 

The Federal Government’s tax revenue is expected to drop to RM227.3 billion in 2020 compared to RM264.4 billion in 2019, a 14% drop. The expectation for 2021 is RM236.9 billion or 15% of GDP, that’s assuming conditions improve.

Lee Heng Guie in Starbiz (Wednesday, 31 March) report suggested a re-balancing of tax from direct to indirect.

Direct Taxes constituted RM115.1 billion in 2020 and is expected to improve to RM131.9 billion in 2021 or 56% of total revenue.

Indirect Taxes, largely SST, totalled RM38.15 billion in 2020 and is expected to improve to RM42.5 billion or 18% of total revenue. 

Non-Tax Revenue, which is basically investment income, was over RM66 billion in 2020 and is expected to drop to RM54.5 billion in 2021. This drop is due to decline of Petronas dividend. Total non-tax revenue constitutes 23% of total revenue.

Non-revenue is largely other receipts, refunds and so forth which was RM7.7 billion in 2020 and is expected to increase to RM8 billion in 2021. It forms only about 3% of total revenue.

Lee Heng Guie’s thesis is for a shift from taxing employment and business activity to taxing consumption and to re-introduce GST instead of SST. To compensate, many SMEs and low-income households are to be zero-rated under Heng Guie’s suggestion. In addition, he cautions against imposing taxes on wealth accumulation and income.

There is a fundamental issue here. Is Malaysia’s income distribution fair? Our Gini coefficient has been stubbornly above or close to 0.4. Once that ratio is closer to 0.3 or below, it is feasible to consider indirect taxes over direct taxes. Why? Indirect taxes, like GST, are inherently regressive – it hits the poor more than the rich. Zero-rated is a facade initially which political masters will duly forget. And if you want domestic consumption to improve and “cost-push” inflationary forces to be mute, then reflect on direct taxes not indirect taxes.

Many have observed extraordinary gains enjoyed by the palm oil, glove/ pharmaceutical and (sometimes) the petroleum sector. It is time that the “super-profits” tax be “tweaked” for those industries that enjoy exceptional gains from Covid (or such other development). Then we have huge dividend pay outs (above RM100 million) to shareholders of certain sectors (like banking). Surely, we could arrive at a reasonable tax for such extraordinary gains based on a suitable threshold (say, RM10 million of all dividend pay outs).

Let us not go back to GST at this stage of our economic development but focus on a fairer distribution of income and wealth.

 

Reference:

1.     Lee Heng Guie, Shifting the balance from direct to indirect taxes, 31 March 2021, Starbiz

2.     Malaysia Federal Government Revenue & Expenditure 2020 & 2021, Ecovis Malaysia

3.     Syahirah Syed Jaafar, Public revenue to shrink to RM227.3b in 2020 amid lower tax collection, 6 Nov 2020, The Edge

4.     Su Wei Ho, 7 revenue streams the government receives through taxes, 30 March 2021, Free Malaysia Today

Health Insurance Premiums Rising Up to 30%!

 

The Government is putting huge efforts to save jobs, offering financial support to both businesses and individuals amidst the pandemic. The health insurance companies, however, have decided to increase people’s burden at this critical time, raising health premiums by up to 30%.

The Federation of Malaysian Consumers Associations (Fomca) President Datuk Marimuthu Nadason feels that there will be many cases where the policy will lapse because they cannot pay the premium. Those who fail to pay the premium will be denied the right to use their medical card.

Unlike medical insurers, banks have been trying to help the businesses or individuals by giving moratoriums where borrowers may defer their loan repayments. What makes it more interesting is both the banks and the insurance industry fall under the purview of BNM.  Shouldn’t it (moratorium) be imposed on medical insurers too?

The 2020 Global Medical Trends Survey by Willis Towers Watson found that Malaysia ranked among the highest in Southeast Asia in terms of expected increase in medical costs. The survey projected medical spend to rise from 11.6% in 2019 to 12.6% in 2020. Another report by Aon’s 2019 Global Medical Trend Rates Report cited Malaysia’s cost of medical care as having risen above the global average in recent years with double-digit medical inflation at 13.6% in 2019. A higher increase from 12.4% incurred in 2018.

Overall, however, in-patients at all private hospitals in 2020 declined with claims made by policyholders reduced according to the Association of Private Hospitals of Malaysia (APHM).

“In other words, the insurance companies should take this into consideration before imposing the hike. Furthermore, all patients who were COVID-19 positive were taken to Government hospitals, and indirectly there would have been fewer claims or pay-outs in claims by insurance companies,” said Parti Sosialis Malaysia (PSM) chairperson Dr Jeyakumar Devaraj.

“Many of them mark up prices and over-investigate and over-treat when there is a third-party payer. Medical treatment should not be provided by for-profit-parties, whether insurers or doctors... There is too much conflict of interest, and there is a severe asymmetry in information. Patients have great difficulty in discerning when their doctor is over-treating,” he said.

Both medical costs and insurance premiums need close supervision. Like how the Social Security Organisation (SOCSO) is structured, the Government should step in to pay insurance premiums where people who cannot afford it. Our overcrowded government hospitals too need expansion or increase in capacity. In fact, MoH’s public health budget has been reduced by 11.7% to RM5 billion in 2021 compared to RM5.7 billion in 2020.

Our current range of health expenditure is between 3-3.9% of GDP (2008-2018), according to the World Bank. Estimates of current health expenditures include healthcare goods and services consumed during each year. This indicator does not include capital health expenditures such as buildings, machinery, IT and stocks of vaccines for emergency or outbreaks. The World Health Organisation is suggesting an expenditure of up to 7% of GDP! We therefore need substantial investments in the public health system to lessen the people’s burden for quality healthcare.

 

Reference

1.     G Vinod, Health insurance firms hike premium rates, Bank Negara mum, 26 March 2021, Focus Malaysia

2.     Jeyakumar Devaraj, Four reasons why Malaysia’s healthcare system is ailing, 16 June 2019, Aliran

3.     Veena Babulal, Increase health expenditure to 7pct of GDP, govt told, 4 June 2020, NST

The Tragedy of Suicide

Every 40 seconds, someone loses their life to suicide and nearly 800,000 people die due to suicide every year, according to the World Health Organisation (WHO). Suicide is the second leading cause of death among 15-29- year-olds after road injury, the WHO said.

Thailand, which ranks in 32nd place with 14.4 of suicides per 100.000 population - or nearly 10,000 suicide deaths last year – holds the unenviable position of number 1 among Asean countries on the WHO suicide list, followed by Singapore (Rank 67 with the ratio of 11.2) and Laos (Rank 84 with the ratio of 8.6. The Philippines has the Asean's least rate (Rank 163 with the ratio of 3.2). Brunei wasn’t on the 183-country list. Global average is 10.5 per 100,000.

As the COVID-19 pandemic took its toll on millions of jobs in Thailand last year, Unyakarn Booprasert found herself penniless and with no friends or relatives who could help. This was reported by Neo Chai Chin and Gosia Klimowicz from CNA (18 March 2021).

The 59-year-old was splitting one packet of instant noodles between three meals. She was desperate for the 15,000 baht (S$655) promised by the government, to be paid over three months, under its No One Left Behind cash relief scheme.

When she learnt she was among the 15 million applicants who did not qualify for aid, Unyakarn decided to plead her case to Thailand’s authorities last April.

“When I got to the Ministry of Finance, sure enough, they didn’t listen,” said the cleaner. “From their actions, a poor person was similar to a pig or a dog, an animal with scabies.”

Unyakarn tried to kill herself with rat poison in front of the ministry’s building. “I wanted to protest. It didn’t happen only to me. It happened to many people,” she told the programme Undercover Asia.

“I thought that the government wanted to get rid of the poor in the country. So, I made their wish come true by getting rid of one person, one life.”

After her suicide attempt, the authorities investigated her case again and decided she qualified for the relief.

Suicides in Thailand have gone up amid the COVID-19 pandemic. A total of 2,551 people killed themselves in the first half of 2020, up 22 per cent from the same period in 2019. Health officials attributed the increase to pandemic-related stress.

Millions of Thais have lost their jobs amid the pandemic, especially those in the tourism industry where more than 500,000 workers have been laid-off in 2020 due to the economic impact of the coronavirus. Earlier this year, the Tourism Council of Thailand said that the country could see a million more jobless tourism workers in the first quarter of 2021.

It was reported that one in 13 workers in Thailand have lost their job.

With millions without incomes, suicide hotlines in the country have seen a spike in call volumes from those struggling in the pandemic. Panomporn Phoomchan, Director of charity group Samaritans of Thailand said that most calls are related to concerns about financial problems.

Unfortunately, the increase of suicide cases during the pandemic is not only exclusive in Thailand. Recently, Philippine media reported that suicide incidents in the archipelago rose by 25.7 percent in 2020 compared to the previous year.

Philippine Statistics Authority (PSA) data revealed that some 3,529 cases of intentional self-harm were recorded last year, compared to 2,808 recorded in 2019.

In Japan, where more women have lost their jobs, 6,976 women took their lives in 2020, nearly 15 percent more than in 2019.

Groups particularly impacted by the pandemic’s fallout include tourism employees, sex workers and migrants. Foreign tourism, which makes up 12 per cent of Thailand’s gross domestic product, has collapsed as nations curb international travel to fight the spread of COVID-19.

Estimates put the number of sex workers in Thailand at anywhere between 800,000 to over two million. Rural-to-urban migrants have also faced difficulty getting aid under the No One Left Behind scheme, as they may be classified in government records as farmers, who come under a different financial scheme.

A similar spike in suicides occurred during the 1997 Asian financial crisis, when the numbers increased by about 20 to 25 per cent, said Varoth Chotpitayasunondh, spokesperson for the Ministry of Public Health’s Department of Mental Health.

Every suicide is a tragedy. But what can be done? There is a need for counselling and more counsellors. Governments and private NGOs could try to make this available to reduce the incidence of these tragedies. One life saved, is one life gained!

 

 

Reference:

1.     The tragedy of suicide, 10 Sep 2019, https://www.nationthailand.com/

2.     Neo Chai Chin and Gosia Klimowicz, With Southeast Asia's highest suicide rate, Thailand grapples with mental health challenge amid pandemic, 18 Mar 2021, CNA

3.     Athira Nortajuddin, Suicide: Thailand’s Epidemic In A Pandemic, 18 Mar 2021, The Asean Post

How Did We Lose “Grab”?

 

Grab Holdings Inc, Southeast Asia’s most valuable start-up, is going public in the US through a merger with blank-cheque company Altimeter Growth Corp. This is the largest-ever deal of its kind.

The Singapore-based start-up is set to have a market value of about US$39.6 billion after the combination with the special purpose acquisition company of Brad Gerstner’s Altimeter Capital Management. Grab is raising more than US$4 billion from investors including BlackRock Inc, Fidelity International and T. Rowe Price Group Inc as part of the biggest US equity offering by a Southeast Asian company.

The deal would make the ride-hailing and food-delivery giant the first Southeast Asian tech unicorn to go public through a SPAC and give it funds to expand. Grab is trying to take advantage of a US-led SPAC listing boom, even though it’s showing signs of slowing amid increased scrutiny by regulators.

The combined entity’s stock will trade on the Nasdaq in the coming months under the ticker GRAB. Altimeter Capital, which orchestrated the initial public offering of Altimeter Growth in September, is putting US$750 million into the company, about a fifth of the fresh funds raised.

That, together with a three-year lockup period for its sponsor shares, indicates Altimeter’s long-term commitment to the company, Grab Chief Executive Officer Anthony Tan said. Altimeter, which manages US$15 billion of assets, has also committed as much as US$500 million to a contingent investment to be equal to the total amount of redemptions by Altimeter Growth’s shareholders. This was reported by the Edge CEO Morning Brief (Yoolim Lee, 14 April 2021).

Grab, the market leader in Southeast Asia for so-called super apps for consumer services, expects its addressable market to expand to more than US$180 billion by 2025, from US$52 billion in 2020. Its total gross merchandise volume last year was US$12.5 billion, more than double from 2018 even as competition from archrival Gojek intensified and the coronavirus pandemic restricted people’s movements.

The deal marks a remarkable turn for Grab. Under pressure from SoftBank Group Corp and other investors, the company had been negotiating a possible merger with Indonesia’s Gojek for most of 2020. But the talks ultimately collapsed around December and Gojek began talks with Tokopedia, another local internet giant.

Tan founded Grab in his native Malaysia as a taxi-hailing app in 2012 with Hooi Ling Tan, a Harvard classmate. They kicked off operations in Kuala Lumpur as what was then known as MyTeksi, allowing users to book cabs.

Grab later relocated to Singapore before expanding as a ride-hailing app from Indonesia to Vietnam, the Philippines, Cambodia and Myanmar. With more than US$10 billion raised from investors led by SoftBank over eight funding rounds, Grab became Southeast Asia’s largest ride-hailing provider before expanding into food delivery, digital payments and financial services across eight countries in the region.

Working toward profitability, Grab said its mobility-services business is making money in all its markets, while food delivery is in the black in five of six markets. The company said it had about 72% of Southeast Asia’s ride-hailing market, 50% of online food delivery and 23% of digital wallet payments last year. Grab was previously valued at about US$16 billion, a person with knowledge of the matter said.

Source: The Star

Experts are saying that Malaysian companies are leaving the shores in search of greater market accessibility, more diversified capital options and for a high-quality talent pool. They added that Malaysia needs to undertake important structural changes if it is serious about retaining such companies in the country.

Socio-Economic Research Centre executive director Lee Heng Guie told StarBiz that the country has the ecosystem for start-ups to be built and strengthened, but more needs to be done to fine-tune the ecosystem as the needs for such start-ups are constantly changing.

Centre for Market Education CEO Carmelo Ferlito said Singapore has a historical advantage based on political stability, a business-friendly environment and a fair taxation system. And with mixed signals from the present Government on policies, taxation, and regulations the listing of start-ups will be hindered. Investors need clear picture on requirements and advantages to remain in Malaysia. Many countries are competing for potential unicorns, but we are not nimble enough. Why? We are tinted with the same political and economic issues from the 70s.

 

Reference:

1.     Yoolim Lee, Grab to list in US in record US$40b SPAC deal, The Edge, 13 April 2021

2.     Ganeshwaran Kana, Grab – A missed opportunity for Malaysia, The Star, 15 April 2021

Why Do Incompetent Men Become Leaders?

 

Historically, most of our leaders have been men. Men are generally perceived as better leaders, even by women. But this is not always the case. There are still many leader roles out there played by incompetent men, and the reason is explained by Tomas Chamorro-Premuzic in his book, Why Do So Many Incompetent Men Become Leaders? (And How to Fix It).

Jakub Domerecki/EyeEm/Getty Images

The answer to why do so many incompetent men become leaders is similar to why are there so few women leaders. The three popular explanations are: (1) women are not capable; (2) women are not interested; (3) women are both interested and capable but unable to break the glass-ceiling: an invisible career barrier, based on prejudiced stereotypes. Conservatives and chauvinists tend to endorse the first; liberals and feminists prefer the third. But what if they all missed the big picture?

People in general commonly misinterpret displays of confidence as a sign of competence. Hence, we are fooled into believing that men are better leaders than women. In other words, when it comes to leadership, the only advantage that men have over women is the fact that manifestations of hubris – often masked as charisma or charm – are commonly mistaken for leadership potential, and that these occur more frequently in men than in women.

Men often think that they are much smarter than women. Yet arrogance and overconfidence are inversely related to leadership talent - the ability to build and maintain high-performing teams, and to inspire followers to set aside their selfish agendas in order to work for the common interest of the group. The best leaders are usually humble.

“Women are better leaders,” says Tomas. “I am not neutral on this. I am sexist in favour of women. Women have better people skills, more altruistic, better able to control their impulses. They outperform men in university at graduate and undergraduate levels.”

Tomas is not biased. The competency of women, in terms of leadership skills, has been proven in research. Jack Zenger and Joseph Folkman’s research concluded that women in leadership positions are perceived just as – if not more – competent as their male counterparts.

The analysis of thousands of 360-degree reviews shows that women outscored men on 17 of the 19 capabilities that differentiate excellent leaders from average or poor ones.

Capability	Women’s percentile	Men’s percentile
Takes initiative	55.6	48.2
Resilience	54.7	49.3
Practices self-development	54.8	49.6
Drives for results	53.9	48.8
Displays high integrity and honesty	54.0	49.1
Develops others	54.1	49.8
Inspires and motivates others	53.9	49.7
Bold leadership	53.2	49.8
Builds relationships	53.2	49.9
Champions change	53.1	49.8
Establishes stretch goals	52.6	49.7
Collaboration and teamwork	52.6	50.2
Connects to the outside world	51.6	50.3
Communicates powerfully and prolifically	51.8	50.7
Solves problems and analyzes issues	51.5	50.4
Leadership speed	51.5	50.5
Innovates	51.4	51
Technical or professional expertise	50.1	51.1
Develops strategic perspective	50.1	51.4

Note: The t-values of all data are statistically significant.

Source: Zenger Folkman 2019

When comparing confidence ratings for men and women, Jack Zenger and Joseph Folkman found a large difference in those under 25. As people age their confidence generally increases; surprisingly, over the age of 60 male confidence declines. According to the research, men gain just 8.5 percentile points in confidence from age 25 to their 60+ years. Women, on the other hand, gain 29 percentile points.

If 90% of the employees competing for the same position are male, and you are making the decision about who to promote, and you have a highly qualified female and a highly qualified male, what are you inclined to do? It may seem safer to choose the man.

Women are far more competent than they think they are. What they need are more opportunities to prove themselves and boost their self-confidence!

 

Reference:

1.     Tomas Chamorro-Premuzic, Why Do So Many Incompetent Men Become Leaders? 22 August 2013, Harvard Business Review

2.     Jack Zenger and Joseph Folkman, Research: Women Score Higher Than Men in Most Leadership Skills, 25 June 2019, Harvard Business Review