PETALING JAYA: Malaysia Building Society Bhd (MBSB) aims to raise its return on equity (ROE) to 8% in the next three years through improved interest margins and a more diversified customer base.

       The Islamic banking-based lender aims to up its ROE by raising its net interest margin (NIM) after converting its large existing fixed-rate accounts to floating rates, according to a Kenanga Research report.

       Following a meeting with the lender’s management, MBSB said the move was necessary as it would allow for a more efficient profit profile.

       MBSB now suffers from a high fixed-rate financing portfolio (36% versus its peer average of 20%) and low current account, saving account (CASA) book (6% versus its peer average of 30%).

       The change from fixed sting fixed-rate accounts to floating rates will present a challenge, according to Kenanga Research.

       MBSB plans to improve its CASA book through the increase of deposits from the cash-rich T20 group that it plans to attract with quality-of-life services such as multi-currency account features with access to gold commodity markets.

       The lender also wants to increase its small and medium enterprises business through improved delivery and service.

       StarPicks

       Pastoral care at the core of holistic higher education pursuit

       On its financial projection for MBSB for the financial year ended Dec 31, 2023 (FY23), Kenanga Research believes the bank’s guidance of ROE of 5% to 6% or about RM450mil in earnings may be hard to hit, as earnings for the nine months of the year came in at RM190mil.

       The research house has, however, made no changes to its FY23 and FY24 assumptions post the meeting with management.

       It maintained an “underperform” call on MBSB with a target price of 63 sen a share, priced at 0.56 times its FY24 book value per share of RM1.13 and ROE of 6%.

       Kenanga Research added that while investors may want to see the impact from the merger of MIDF into the group’s operations, synergies may only be extracted in the longer term.

       “The group may also require greater efforts to reoptimise its funding mix, especially given its low CASA levels, which may make it less attractive than its peers. Not helping either is its lowest ROE positioning against peers,” it said.