AMMB recently shared its stronger emphasis on business banking (a combination of SME and enterprise units) to enable stronger penetration and scale in these spaces while being funded by retail deposits. According to Kenanga the group's recent transition to FIRB accounting standards, the higher CET-1 enabled (+15%) will only be translated to higher payouts very gradually to accustom to its new levels for now. The house has picked AMBANK as one of the Top Picks for 1QCY25.

The group hosted a 1HFY25 analyst briefing. The key takeaway from that was that the portfolio re-composition was in the works and targeted approach was to continue. From its recent reporting, AMBANK had grown its loan books by only 2.4% CY24-YTD as opposed to the industry's 4.1%.

This is attributed by the group's renewed focus to acquire better quality yet higher margin loans in the retail SME and mid
corporation segments. To ensure a steady pipeline, AMBANK is building presence outside of Klang Valley which is largely untapped by the group, namely Penang and East Malaysia which are slated to see growth in their economic supply chain.

Meanwhile, retail strategies entails being much less aggressive in the mortgage markets, preferring to target higher value accounts (>RM750k homes) typically undertaken by more affluent customers with a better propensity to be cross sold other products (i.e. wealth management, insurance). Meanwhile, a larger hire purchase portfolio would be preferred against downside biases to OPR given its fixed rate nature.

Funding to also be streamlined. On the liabilities front, the group is recalibrating its funding sources to see a higher retail deposits mix, which was previously dominated by higher costing corporate wholesale accounts. Other considerations for funding also include debt instruments which also attract lower interest cost to the group.

These efforts have translated to a healthier NIMs in 2QFY25 at 1.96% (1QFY25: 1.89%, 2QFY24: 1.82%) of which the group
anticipates sustaining throughout FY25. Cost efficiency to gradually materialise. While AMBANK's costto-income ratio of 44% is below the industry's average of c.50%, it holds an aspired 40% level in its 2029 Strategy. This would elevate the group to being in the Top 3 in terms of cost efficiency while pumping up its return on assets. However, given continued investments into building its business banking unit as well as IT spends into big data and AI-related infrastructure, its cost-to-income ratio will not be expected to trail down in the near term.

Capital build done, but closely held for now. Regarding its new CET-1 holdings of 15.3% post-FIRB transition, the group views this new level as comfortable and would prefer to utilise the capital to strike a balance between business growth before dictating higher dividend payments in the near-term. Indicatively, AMBANK holds a long-term payout target of 60% from 40% in FY24.

Kenanga said it was guided that the group will attempt to not let its CET-1 fall below 14% which theoretically indicates an allowance for capital release of c.RM1.8b (c.55 sen per share). This has embolden the FY25 projections that the group may decide to increase its pay-out ratio to 50% as it does not appear to be overly extensive to its CET-1 balance.