Malayan Banking Bhd May Have to Make Higher Loan Provisions Of Up To RM 5 Billon

Maybank may have to make a higher loan provisions of up to RM 5 billion from the over-priced purchase of Pakistan’s MCB Bank and BII and not only the RM 242 million for its investments in MCB. Maybank had paid RM 10.8 billion to purchase two distressed foreign banks at twice their present value – the RM 8 billion acquisition of BII and RM 2.8 billion purchase of a 20% stake in Pakistan’s MBC Bank.

Net profits from Maybank for the first quarter ended Sept 30, 2008 (1QFY09) fell by 22.2% to RM572.17 million from RM 735.4 million a year earlier. Amongst two key factors for the 22% drop:

· reversal of its RM193 million foreign exchange gain reported last year in relation to the purchase of BII;

· impairment losses of RM242 million in its associate company, Pakistan’s MCB Bank Ltd.

Loan loss provision was 192.2 million ringgit compared to 108.1 million ringgit a year ago mainly due to the lower specific allowance written back. This may be insufficient as the over-priced purchase of the two foreign banks by Maybank at almost double the value has caused instant losses of at least RM 5 billion.

If there is a RM 5 billion loan provision, this will wipe out Maybank’s profits for two years and demonstrates the lack of professionalism and due diligence carried out by Maybank’s management in deciding to purchase the two banks at such a high price. By stubbornly proceeding with the purchase, Maybank has dealt a blow not only to its reputation and standing but also undermined foreign investors’ confidence in the credibility of our financial markets.

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