Bank Rakyat puts the brakes on personal loan growth

BANK Kerjasama Rakyat Malaysia Bhd (Bank Rakyat), Malaysia’s largest development finance institution (DFI), appears to be putting the brakes on the growth of its main personal finance (PF) business for years.

The Islamic lender, which recently announced its financial results for the second quarter of the fiscal year ending 31 December 2022 (Q2FY2022), said its PF business, which accounts for 74.3% of its total loans, came in at RM5.901 billion. saw the

This represents a year-to-date (YTD) decline of 1.5%, despite an increase of 1.6% in personal loans/credits in the banking system over the same period. In fiscal year 2020, Bank Rakyat’s PF business saw a blazing 6.9% year-on-year growth. This was his strongest growth in six years and was another meager 0.9% in fiscal 2021.

Bank Rakyat is by far the largest player among banks in the personal loans/finance sector. As an overview, personal loans/credits in the Malaysian banking system stood at MYR 107.23 billion at the end of August, suggesting Bank Rakyat’s market share is quite large at 55% with a portfolio of MYR 59.01 billion. increase.

Banks want to slow down the PF segment while growing other segments such as mortgages, auto loans, and small and medium-sized enterprise (SME) business to diversify their revenue base.

This is necessary for Bank Rakyat’s long-term growth, industry observers say, with lenders relying too long on providing PF to government officials, many of whom are already highly leveraged. pointing out that Most of the loans are for civil servants.

In its latest annual report, Bank Rakyat cites efforts to limit PF growth to “less than 1% per annum” and takes steps to diversify into other areas. It also said it hopes to expand its customer base by diversifying into other segments, namely the private sector and non-fixed income earners.

Chairman Datuk Abd Rani Lebai Jaafar said the bank’s completion of 10 new SME and Cooperative Business Centers (SMEC) across the country in 2021 is part of the bank’s “diversification strategy away from over-reliance on retail finance.” emphasized that it is part of

“With this, Bank Rakyat is well on its way towards its goal of over RM7 billion in total SMEC loans outstanding by 2025, with around RM3 billion achieved. [at] 2021,” he said in its annual report.

Analysts spoken to by The Edge said it would be good for banks to diversify into other areas for growth, and a slow move out of PF would lead to more problematic loans in that area. It also mentions what happens amid mounting potential economic headwinds.

Currently, among consumer loans in the banking system, personal loans have the highest Gross Impairment Loan (GIL) ratio, at 2.72% at the end of August, followed by residential real estate (1.35%) and credit cards (0.89%). ) is being compared with Vehicle financing (0.58%).

“On the other hand, Bank Rakyat’s unsecured PF business is a relatively safe business. [given the automatic monthly salary deductions for civil servant customers]So a shift to secured loans like mortgages would hurt bank profits,” said one analyst, adding that personal loans have the highest yields in retail banking. points out that there is a tendency

Given the automatic payroll deductions for civil servants, Rakyat Bank’s GIL ratio was relatively low at 2.01% at the end of June, but up from 1.7% at the end of last year. Only in the rare cases of civil servants losing their jobs, changing jobs, or dying can problems arise.

It is unclear to what extent bank loans are currently receiving repayment assistance. As of Q1 2022, the Group has grown its housing finance sector by 5.4% YTD to RM8.84 billion and its installment purchase sector by 4.7% to RM2.01 billion. In fact, all lending segments are higher except PF, pawnshops and revolving credit.

higher returns

Rakyat Bank is certainly not a small bank. With assets of RM116.41bn, it is the second largest Islamic financial institution after Maybank Islamic Bank (RM272.56bn) and almost double that of the country’s smallest banking group, Alliance Bank Malaysia Bhd (RM63.13bn). is the scale of YTD, its assets increased by just 1%.

Bank Rakyat’s net profit increased 34.3% year-on-year to RM557.49 million in the second quarter of 2022 due to lower impairment charges, which decreased by 20.7% to RM178 million. Net profit fell slightly by 1.9% to reach RM865.69 million as spending increased by 3.5% to reach RM559.14 million. Quarter-on-quarter, net profit jumped 49.8% from he RM372.19 million.

Impairment provisions decreased by 15.2% to RM358.13 million and operating expenses decreased by 7.4% to RM678.79 million, resulting in a 6% increase in cumulative net profit over the six months to date. RM 929.68 million. Net profit fell 3.4% to RM1.73 billion. Total disbursements increased by 2% year-on-year to RM79.36 billion.

In 2021, Bank Rakyat increased its net profit by 35% to reach RM1.86 billion. This is the highest value since 2017 (RM1.91 billion). Almost 70% of the portfolio consists of variable rate funding, indicating that the group should benefit from a rising interest rate environment.

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