Challenging capital markets in region drag Maybank's 1HFY14 earnings

But greater cost discipline partly offset result.

Maybank’s 1HFY14 earnings of MYR3.2bn (+3.4% y-y) came in at 46% of Nomura's and consensus full year estimate.

According to a research note from Nomura, the lower-than-expected earnings were due to challenging capital markets around the region and lower Indonesia contribution.

This was partly offset by greater cost discipline, where management has been focussing on lowering discretionary opex – the cost income ratio thus improved to 48% this year from 50% in 1H13.

Here's more from Nomura:

Topline was weak, continuing the 1Q14 trend of slowing markets/treasury-related earnings. This was impacted by lower stockbroking volumes in Thailand and Singapore and smaller fixed income gains (recall, the bank took the opportunity last year to lock in gains on its investment securities book just after the general elections).

Loans growth was decent at 13%y-y led by the international business Singapore commercial (+23%), Indonesia (+26%) and other markets including Greater China (+37%).

The domestic consumer business held up well, expanding by 12%, but corporate banking (+1%) was impacted by offshore refinancing and repayments.

NIMs declined 13bp y-y, slightly lower than management’s guidance of 10bp compression due to:

1) the challenging environment in Indonesia, where the NIMs have fallen ~60bps;

2) downward repricing of the domestic mortgage portfolio; and

3) strong growth in Singapore where asset yields are lower.

However, 2H14 should see a lift in domestic NIMs following the OPR hike in July – Maybank raised its lending rates by the full 25bp while deposit rates increase was only 15bp.

The Malaysia LDR remains comfortable at 87%. Asset quality ex Indonesia remains healthy with lower NPL ratios in Malaysia and Singapore.

Indonesia NPL ratio has risen to 3.5% from 2.8% in Dec ’13 mainly coming from the mining corporate space.