Maybank falls on dividend worries
KUALA LUMPUR: Malayan Banking Bhd (Maybank) sank to a near 4-year low yesterday on worries about a possible reduction in annual dividends following the banks recent purchases of stakes in foreign banks.
Shares in the countrys largest bank in terms of assets fell 30 sen to RM7.70 as investors weighed the consequences of not just the acquisition of a stake in Pakistan’s MCB Bank Ltd, but also stock in two other foreign banks within a span of 1 months.
The plan is in progress and management has hinted it will include equity capital raising. It did not rule out a dividend payout of less than the earlier guidance of 60%, a brokerage report said.
Other reports also echoed investor concerns over the prospect of an earnings dilution and lower dividends.
Analysts said a cut in dividends was possible as Maybank may rethink its dividend policy for the next two years in view of the need for a massive capital raising exercise to fund the RM12bil bill the group would have to shoulder.
A Maybank spokesman told StarBiz the dividend policy of 60% would be maintained over the long term. The payout ratio in the current year will be dependent on an optimal capital structure to be announced later, the spokesman said.
Maybank is paying RM8.6bil for Bank Internasional Indonesia (BII), RM450mil Vietnams Ah Binh Commercial Joint Stock Bank and RM2.96bil for MCB.
Analysts are concerned the acquisitions could result in Maybanks core capital and risk weighted capital ratios falling perilously close to Bank Negara’s permitted minimum thresholds.
But in the case of Maybank or any of the country’s top banks, the minimum is, however, insufficient. Bank Negara and rating agencies would like to see the top banks maintain a healthy ratio so as to maintain their financial strength and avoid a ratings downgrade.
To ensure that those critical capital ratios are bumped up to healthy levels, analysts feel that Maybank would have to raise capital, which would lead to an earnings dilution.
A reduction in dividends is also envisaged to help boost the groups capital position.
Notwithstanding those issues involving dividend and shares issuance, analysts generally feel that the MCB deal would add value to Maybank.
One research report said MCB’s strong performance and growth prospects helped outweigh the cons of the deal, which is primarily the steep price-to-book value.
Analysts feel that the synergies and partnership that would be developed between Maybank and MCB would also help the latter’s earnings grow and, consequently, its profit contribution to Maybank.
The risks to the deal are that MCB might face economic and loan risk from the tightening of Pakistans monetary policy. There are also concerns that MCBs valuations are stretched.