Bank Practice and Management Inclusive of Ratios and Graphs - Maybank - Essay Example

Bank Practice and Management Inclusive of Ratios and Graphs: The Case of Maybank Introduction The Maybank bank is a leader in financial service in Malaysia. The bank operates in seventeen countries globally and has a network of more than two thousand one hundred offices. Maybank was incorporated on 31st, May 1960 but it opened up its doors on 12 September, 1960. The bank grew rapidly and was listed in the Kuala Lumpur Stock Exchange in 1962 (Maybank 8). By the end of its second year in operation Maybank had opened up branches in other parts of Malaysia as well as in other countries such as Brunei, Singapore, London and Hong Kong. The main objective of the bank during its incorporation was to support the growth of Malaya that had just gained independence by financing economic development and offering modern financial services to the people (Maybank 8). Over the decades, Maybank has continued with expansion and embraced innovation by offering diverse products to its customers and supporting Malaysian citizens who invested or were trading abroad. Presently, Maybank has emerged as the largest company based on market capitalization in the Bursa Malaysia and is also identified as a leading bank in the region. The bank is currently guided by its mission of offering “humanising financial services across” and its well articulated vision of becoming a leader in offering financial services in the region (Maybank 10). Overview of the Bank Activities Maybank offers a range of financial products including commercial banking, stock broking, investment banking, Islamic banking, trustee services, asset management and insurance. The banking group has several subsidiaries. The Malayan Banking Berhad is the listed entity and holding company of Maybank Group. Mayan Banking Berhad has branches in Malaysia, London, Singapore, New York, Bahrain and Hong Kong. Some of the international unit subsidiaries of Maybank include PT Bank Internasional Indonesia TBK (BII), Maybank Philippines Inc., and Maybank International L (Ltd) (Maybank 34). Furthermore, the major subsidiaries of the banking group are Maybank Islamic Berhad, Maybank Investment Bank Berhad and Etiqa Insurance Berhad. Maybank Investment Bank Berhad is fully owned subsidiary of the group and is the main investment branch of Maybank. Kim Eng Holdings Ltd is also wholly owned subsidiary of Maybank and is the “regional securities powerhouse”. Maybank Islamic Berhad is the biggest provider of Islamic financial services throughout the Asian Pacific region. The 100 percent owned subsidiary owned by Maybank is the 17th Islamic banking institution in term of compliance to Shariah assets (Maybank 55). Tbk is 97 percent owned by Maybank and offers financial services such as Consumer and Corporate Banking and SME/Commercial services. The associate companies of Maybank Group are the MCB Bank in Pakistan and An Binh Bank in Vietnam both of which the group has 20 percent stake. The group corporate structure of Maybank is subdivided into four main areas, that is, commercial banking insurance and investment banking. The commercial banking includes various subsidiaries of the bank either owned wholly or partly. Additionally the investment banking section consist subsidiaries such as Maybank Investment Bank, Maybank IB Holdings SDN among other ventures. The insurance section includes all the subsidiaries that offer insurance services to customers. When it comes to the organizational structure, Maybank is headed by a board of directors which is then supported in its activities by the Chief Audit Executive, Head of Compliance and the General Counsel and Company Secretary (Maybank 85). The next in the hierarchy is the president assisted by several deputies. The deputies are in charge of Community financial services, global wholesale banking and group financial services. Maybank Group has developed several strategic objectives to be achieved by 2015. These goals include becoming the number one retail financial institution in Malaysia, leading the ASEAN wholesale bank which will eventually see the bank enter the China, Middle East and Indian market. By 2015, the bank also aims to become sustainable in offering Insurance and Takaful and become a truly regional bank by ensuring that more than 40 percent of its pre-tax profits come from international operations. The fifth strategic objective to be achieved by 2015 is to become the chief Islamic financial organisation in ASEAN. These objectives will be a group referred as the “New House of Maybank”. The group will accomplish several activities under the support of the senior management of the organisation (Maybank 85). It will strive to leverage shared distribution, follow customer driven approach in the segmentation and be a community bank. To become an international wholesale bank, the New House will seek to regain leadership in the domestic market and aggressively pursue expansion into the ASEAN by ensuring that it humanizes its interaction with clients. Lastly, to provide sustainable insurance and takaful, the New House will champion in the national insurance and staying the ETIQA way. Section 2 This section will offer an analysis of the performance of the bank group for both 2010 and 2011. One of the performance indicators of the bank group includes the return on equity (ROE) (Hogan 26) ROE is acquired after tax and minority interest has been deducted from the profit. The profit is then divided by the mean shareholders’ equity during a particular financial year. The shareholder equity consists of the share capital and any retained earnings and reserves. Maybank has a target of achieving 18 percent ROE by year 2015. Bar graph showing the ROE in 2010 and 2011 The ROE for Maybank rose by 0.7 percent from the 2010 level and this was promoted by growth in profit and higher efficiency in utilization of capital. A higher ROE indicates that the bank effectively invested the available resources and there were higher returns. Maybank was able to surpass the 2011 ROE target of 14 percent. The average ROE industry is 18 percent but Maybank has not been able to achieve this target due to increased equity capital investments after Maybank made several acquisitions since 2008. However, a growing ROE shows that Maybank is an attractive investment for the investors. The other comparative indicator on the performance of Maybank is the loan and debt securities growth. Loan and debt securities are financial assets to the bank and their measure indicates growth in gross loans and various other security issuances. A bar graph showing Growth in Loans and Debt Securities for the year 2010 and 2011 During the 2011 financial year, Maybank targeted to achieve a 12 percent growth in loans and debt securities growth. However, during that period it was able to surpass this target achieving 22.6 percent growth. The high growth in loans and debt securities was facilitated by enhanced growth in domestic loans that stood at 16.8 percent while international loans hit a high of 29.4 percent. Growth in loans and debt securities is used as a measure of the performance of a bank since financial institutions are engaged in offering loans which in turn helps them earn profit through interests charged. Moreover, by having a high loans and debt securities standing, it indicates that the bank is effective in selling its products and that its customer base is also increasing. From the analysis, it is evident that Maybank is doing better internationally compared to the domestic market which may be attributed to strong competitors domestically or having reached near saturation in penetration. Considering the key performance indicator in specific areas, the loan growth under the Bank Internasional Indonesia (BII) was highest compared to loan growths in Malaysia and Singapore as shown below. Despite registering high loan growth, Bank Internasional Indonesia posted a decline from the previous financial year. A bar graph showing the growth in loans growth in three key areas of operation for Maybank in 2010 and 2011 In all the markets, Maybank was able to come over its 2012 targets. In Malaysia, the loan growth had been projected to grow by 12 percent in 2012 but the actual growth stood at 16.8 percent. The domestic growth in Malaysia was supported by increased corporate loans which shot to 25.6 percent as underpinned by economic programmes initiated by the government. Loan growth in the Malaysia was higher than that of the overall industry which was 13.5 percent also supported by major corporate loans. Growth in loans in Singapore as was reported by Maybank Singapore stood at 25.8 percent which was way above the estimated growth of 5 percent. The high growth reported in Singapore was supported by increased businesses seeking loans and this stood at 33 percent as the consumer loans was at 16 percent. Loan growth by BII stood at 25.8 percent and this was achieved through high consumer loans and growth in small and medium enterprise (SME) credit achieved through over seventy branches. Maybank has a dividend policy to pay dividends that are equivalents to between 40 and 60 percent of the annual profit after deducting tax and minority interest. In 2010, the dividend payout ratio was 76.5 percent while dividend payout in 2011 was 74.9 percent. To protect loss of capital, Maybank introduced Dividend Reinvestment Plan (DRP) in 2010. This will see the group reinvest the dividend earned in other activities. Section 3 In conversion, 1Malaysian Ringgit is equal to 2.45852 Singapore Dollar is carried out at the rate of 2.45852. Therefore the net profit which was RM 4.45 billion translates to 4.45 billion/2.45852=1.8100320 billion Singapore dollars. Risk Ratio Analysis for Maybank For The Period 2010 TO 2011 Ratio Ratio formula Actual figures for the Year 2010 (Previous Year) ($M) Ratio answer for the Year 2010 (Previous Year) Actual figures for Year 2011 (current year)($M) Ratio answer for Year 2011 (current year) Source of information in annual report Comments Net margin (after Tax) Operating profit after tax Interest income + non-interest income 3,818, 000/(8206000+3693000)= {(3818,000/2.45852)/(11899000/2.45852)} 0.32 4450000/(8747000+4115,000)= {(4450000/2.45852)/(12862000/2.45852)} 0.34 Income statement (Maybank 83) There was an increase in the net margin of after taxation which indicate increasing profitability Asset utilization Interest income + non-interest income Assets (8206000+3693000)= {(11899000/2.45852)/(336700000/2.45852)} 0.035 {(134,198000/2.45852) /(411,958,694/2.45852)} 0.3257 Income statement and balance sheet (Maybank 83) There was a decline in asset utilization from the 2010 level indicating a low motivation to invest Return on assets Operating profit after tax Assets {(3,818, 000/2.45852)/ (336700/2.45852)} 0.011 {6,135 000/2.45852)/(411,958,694/2.45852)} 0.015 Income statement and balance sheet (Maybank 83) Return on assets increased by 0.4 percent in 2011 showing high return on investment Leverage multiplier Assets Equity {(336700000/2.45852)/(27,877,000/2.45852)} 12.078 {(411,959/2.45852)/ (31,461/2.45852)} 13.1 Balance sheet (Maybank 84) The leverage multiplier increasing by 1 percent in 2011. Return on equity Operating profit after tax Equity {(3,818, 000/2.45852) /(27,877,000/2.45852)} 0.13 {(6, 270/2.45852) / (31,461/2.45852)} 0.2. Income statement and balance sheet (Maybank 85) Shareholder investment earned higher returns in 2011 compared to the previous year Liquidity risk All assets with maturity ? than 1year All liabilities with maturity ? than 1 year {(93381159/2.45852) /(213362053/2.45852)} 0.44 {(95381159/2.45852) /(233362053/2.45852)} 0.4087 Notes to financial statements (Maybank 354) The bank has increased its liquidity in 2011through higher deposits form customers and this has helped it reduce its liquidity risk from the 2010 figure. Interest rate risk Interest sensitive assets ? than 1 year Interest sensitive liabilities ? than 1 year {(382,512,000/2.45852) / (6,951,520/2.45852)} 0.045 {(20,263,869/2.45852)/(11,311,854/2.45852)} 0.002.34 Notes to financial statements (Maybank 453) Risks that the bank was exposed in 2011 was also a 2.1 lower than it was exposed to in 2010 Credit risk All impaired loans of bank Gross loans {(131, 955 million/2.45852)/(263,1 billion/2.45852)} 0.72. {(129, 955 million/ 2.45852)/ (261.2 billion/2.45852)} 0.5 Notes to financial statements (Maybank 354) Risks when issuing credit reduced in 2011 after the bank institute tighter measures to check defaulters Capital risk Equity Assets {(27,877,000/ 2.45852)/(336700000/2.45852)} 0.09 {(31,461/2.45852) /(411,959/2.45852)} 0.076 Balance sheet (Maybank 184) The risk that the bank is exposed when investing its capital has become reduced due to a favorable investment environment The bank has complied with the requirements of the New Basel Capital Accord that requires groups to report their performance based on various ratios in financial reporting (David Hager, Andersen, Aven and Frode Bo, 2007). Maybank has given various ratios in its 2011 financial report. Capital Adequacy Ratio Analysis of capital adequacy ratios for Maybank and their comparisons over the period between 2010 and 2011. The formula used is: Tier 1 + Tier 2 capital Total credit risk + market risk + operational risk CAR Component Actual figures for the Year 2010 (Previous Year) ($M) in Singapore Dollar Actual figures for Year 2011 (current year)($M) in Singapore Dollar Discussion Reference Tier 1 (27,054,775/2.45852)= 11004496.61 (29,473,971/2.45852)= 11988501.6188 Tier one capital indicates the strength of the bank financially. In 2011 the bank had higher Tier 1 capital compared to 2010. This shows that the bank performed better financially in 2011. Maybank 429 Tier 2 (11,907,657/2.45852)= 4843424.906 (11,728,107/2.45852)= 4770393.163 Tier two capital refers to all supplementary capital and include undisclosed reserves, loss reserve. In 2010, this figure was higher compared to 2011 which means that group made higher provisions had been made in 2010 compared 2011. Maybank 429 Total credit risk (27,841,367/2.45852)= 11324441.94 (20,764,624/2.45852)= 8445985.39 The total credit risk indicates the creditors will default on loans. In 2010, Maybank had a higher risk when lending compared to 2011. Credit risk increases when the loans given do not have adequate collateral Maybank 430 Market risk (15,991,249/2.45852)= 6504420.95 (9,692,832/2.45852)= 3942547.5489 Market risk refers to a risk that value of the portfolio will fluctuate following changes in market factors. In case of Maybank, the total impact of a decline in market risk was higher in 2010 compared to 2011 meaning it was move favorable for shareholders to invest in the bank in 2011 compared to the previous year. Maybank 430 Operational risk (23,223,860/2.45852)= 9446276.621 (17,738,110/2.45852)= 7214954.525 Operational risks are those risks emerging from the functioning of the bank and this were lower in 2011 compared to the situation in 2010 Maybank 430 CAR (Final ratio answer) {(11004496.61+4843424.906)/ (11324441.94+6504420.95+9446276.621)}= (15847921.516/27275139.511)= 0.5810 {(11988501.6188+4770393.163)/( 8445985.39+3942547.5489+7214954.525)}=( 16758894.7818/19603487.4639)= 0.855 In 2010, the CAR is lower compared to 2011 results. This shows that the bank’s capital was exposed to lower liquidity risks compared to how it was in 2010. Summary Since the formation of Maybank in 1960, it has undergone tremendous growth that has seen it become a leader in the financial industry in the region. Maybank has extended its operations both nationally and intentionally and the products it offers have also become diversified. The bank carries out its operations through a number of subsidiaries some of which it owns wholly. Looking at the performance of the bank in last two years shows tremendous growth. The bank’s return on equity for the year 2011 was higher than that of 2010 and it was able to surpass all its targets. The bank also went through increased growth in terms of loan and debt securities between 2010 and 2011. Higher growth is supported by increased borrowing by both single and corporate consumers. The growth experienced in the bank varied according to a specific area. The performance of Maybank has also been calculated using various ratios and this shows fluctuations. Most of the results from the bank ratios indicate efficiency in resource allocation and a reduction in risks. Work cited David Hager, Andersen, L. B., Aven, T., & Frode Bo. (2007). The Basel II capital accord and operational risk management; status and the way forward. The Business Review, Cambridge, 7(2), 207-214. Retrieved from http://search.proquest.com/docview/197303402?accountid=45049 Hogan, W P. Management of Financial Institutions. Milton, Qld: John Wiley & Sons Australia, 2004. Print. Maybank. Annual Report 2011. Pp. 1-555. Web. 7th September, 2012. Read More