MBSB sets conservative financing growth targets

PETALING JAYA: Malaysia Building Society Bhd (MBSB) is looking at achieving a financing portfolio growth of RM44bil from RM42.9bil currently, and a return on equity (ROE) of 4% to 5% by the end of 2024.

Group chief executive officer Rafe Haneef said these are conservative targets given the company’s one-off gain last year from its acquisition of Malaysian Industrial Development Finance Bhd (MIDF).

“To achieve the ROE target of 4% to 5%, financing must grow at 8% to 9%. Our current run rate is RM42.9bil, so I think we are quite healthy in terms of growth in financing.

“We also need to ensure that this growth gives us a net profit margin. Our guidance is a 2% net profit margin.

“At the same time, we need to control our costs and we have provided guidance that this will be at a 55% cost-income ratio, which we eventually want to bring down to 50%,” he said during the media conference, held in conjunction with its AGM.

One of the key agenda items at the AGM was the unveiling of FLIGHT26, the group’s strategic three-year business plan designed to boost profitability.

The plan entails four key missions, namely elevating the group’s current account savings account (CASA) ratio to 20%, expanding the financing portfolio to RM50bil, increasing non-funded income to 15% of net revenue and achieving a cost to income ratio of 50% by 2026.

“If you look at the financing target, we are already at RM42bil. In three years, we want to grow to RM50bil and in the first quarter of 2024 we are already at RM42.9bil. As such, I do not think it is an aggressive target, bearing in mind we also have close to RM10bil worth of capital,” Rafe said.

These initiatives are expected to substantially improve the group’s ROE, which the Islamic banking-based lender ultimately aims to raise to 8% by the end of 2026.

“It is not that our costs are higher. We have done all the comparisons. Our personal costs, establishment costs and technology costs are all on top if not lower than industry average. Hence, the top line is what needs to improve. The top line is improving, but it is eaten away by the cost of funds.

“Hence, FLIGHT26 is all about bringing the CASA up, rebalancing the fixed deposit portfolio and reducing some of the high cost institutional deposits and eventually improving the net revenue, and then finally the cost income ratio,” he said.

Rafe also noted that MBSB remains confident in achieving the 8% ROE target given its unique asset holding, with 50% of its portfolio in personal financing that has a very low impairment ratio.

“The low impairment ratio is due to 92% of our personal financing being taken by government servants, with deductions made at source before they receive their salaries. This reduces delinquency and the yield is much higher.

“However, this portfolio is funded by high-cost deposits. While other banks might offer high rates, it does not mean it will lead to a higher net profit margin because it is difficult to find corresponding high-yield assets.

“Here, we already have an existing healthy book. The main issue is our cost of funds. If we can achieve a 2% net profit margin with a 7% CASA ratio, imagine how much we could improve by growing CASA to 20%,” he said.

During the AGM, the proposed change of name of the group from Malaysia Building Society Bhd to MBSB Bhd was also approved by the shareholders.