Blog, Stock Take

Maybank (KLSE: Maybank) & CIMB (KLSE: CIMB)

Malaysia largest banking firms by asset value are Maybank and CIMB. Their stock price closed at RM9.38 and RM 5.59 respectively today, which translates to a fall of 13% and 23% since its peak in 2Q18. But are they cheap? Before we answer this question, lets look into their fundamental metrics.

Firstly, non-performing loan (NPL) ratio. A growing percentage of NPL is an unhealthy sign of loan management. NPL may lead to a loan default. CIMB has been maintaining its NPL ratio < 3.5% while Maybank has been impressively keeping its NPL ratio < 1.6%  for the past 5 years. Recommended benchmark by Fools.com is <2%

What about Tier 1 Capital Ratio (CAR) ratio? According to Investopedia defination, Tier 1 CAR is the capital that is permanently and easily available to cushion losses suffered by a bank without it being required to stop operating. In FY2017, Maybank and CIMB both recorded Tier 1 CAR > 16, exceeding Basel III accord requirement of 4.5.

Return of asset (ROA) gives us an idea on how effective does the bank uses its asset to generate income. Maybank  and CIMB generated an average of 5.9% and 3.5% per annum respectively in past 5 years. Recommended benchmark by Fools.com is >2%

Lets look into their Dividend performance in FY2017 against today’s price. Maybank dished out 5.8% (vs CIMB 4.5%) and has been growing its dividend by about 4.7% (vs CIMB 6%) in the last 5 years.

Lastly (and most importantly), we will look into the banks past Profit performance. Maybank recorded profit growth of 13% in 5 years. On the other hand, CIMB profit dipped 1.5% for the same period.

“From a broad view, Maybank’s performance has an edge over CIMB based on the above metrics”

How cheap are these banks?

One of the key metrics to look into is the price to book (P/B) ratio, which measures how much a bank is trading against its asset value. P/B < 1 , indicates that bank stock is selling below its asset value. Maybank is selling at a premium P/B of 1.38. CIMB however traded closer to its asset value with P/B ratio of 1.06. Recommended benchmark by Fools.com is between 0.5 to 2.0

“We can generally summarise that Maybank is a more valued stock by investors because it is traded at a 38% premium over its asset value. This may be largely due to its stronger performance based on the fundamental metrics”

Lastly, lets look into OCBC, which is Singapore’s 2nd largest bank as a case study. I state the metrics below using OCBC’s FY2017 annual report for your own comparison and decide how does Maybank or CIMB compare to an oversea bank

NPL – 1.5% , Tier1 CAR – 14.9, ROA – 2.1%, Dividend – 3.4%, Profit growth (last 5 years) – 45%, P/B – 1.22

Share with me your comments in the section below

Diclosures: I own stocks in Maybank, CIMB and OCBC when this article was written. Any information, commentary, recommendations or statements of opinion provided here are for general information purposes only.

6 Comments

  1. It might be a stupid question…
    But many layman first timer investor like me might still worries about one common question in our mind everyday …
    ” Can any of the banks in Malaysia go bankrupt ” – which directly translate into many of us in Malaysia especially the senior citizens like us, goes (mentally bankrupt) immediately ???

    1. Hi WWJ, Thanks for dropping by

      Investment has its risks and only with risk can there be reward. Even fixed deposit investment is subjected to risk (i.e. FDs are guanranteed by PIDM up to RM250K only, if the bank collapses). FD is considered as low risk due to PIDM guarantee thus generating a smaller return for its investor vs other investment instrument such as stocks or property.

      Banks can collapse. Most prominent bank in recent times that gone bankrupt is Lehman Brother, which was US 4th largest bank. Before 2008 glob financial crisis (GFC) nobody including the US Government can ever imagine that such a huge bank can collapse. It was deemed too huge to fail. And because of that, the government did not step in to bail out Lehman Brother when it was in trouble. The rest is history.

      Post 2018 GFC, banks are regulating themselves better. Take Maybank for example, its NPL has been consistently low in recent years, hovering about 1.6% vs pre 2018 GFC period of up to 4% in 2016. Local regulator too has since require their banks to keep within the allowable Tier 1 CAR limit (dependent on country).

      In general, banks stock tends to be volatile (i.e. price swings that goes in tandem with economy performance). Investment diversification and assessment of bank performance through their key metrics can help to reduce your investment risk in bank stocks

  2. Interesting article, I’m not that good in terms of dishing out numbers like u did, but I can tell from past performances, maybank has the upper hand when compared to cimb
    Also when I go out for shopping in various places, I do notice d queue in maybank ATMs are significantly longer than any other banks 🙂
    A quick review of the fundamental data, some technical analysis and real life assessment, I decided to buy maybank (managed to buy at rm 8.97)

    1. Mr Spoon, I couldnt agree more! Value investing is a living art. Observing how a business work and performs its day to day function can tell us more about it than just looking into their numbers

  3. Thank you for posting this awesome article.
    I’m a long time reader but I’ve never been compelled to leave a comment.
    I subscribed to your blog and shared this on my Twitter. Thanks again for a great post!

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