MBSB – lower returns as an Islamic bank

[i4value]

Before becoming an Islamic banking group in 2017, MBSB was mainly a property financier. This changed with the acquisition of Asian Finance Bank in 2017 as this propelled MBSB into Malaysia’s second-largest standalone Islamic Bank.

But as can be seen from the return charts, this also resulted in reducing its returns from both the ROE and ROA perspective.



Of course this was the combination of lower bottom line with more assets and equity. The point is that if you were a shareholder prior to the transformation, you got lower returns. This is not exactly exciting news for MBSB shareholders.

[weijian]

Hi i4value,

Thanks for the great write-up. In your opinion, what are the reason/s that cause MBSB to have a lower NIM and yet higher NPL than the sector average? The numbers NIM/NPL are symptoms. What are the underlying root causes?

In Spore, there are a couple of such financiers around (non banks) that have systemically lower NIMs. And they are mainly because they have never managed to attract cheap enough deposits, unlike their counterparts mainstream banks.

[i4value]

For years before becoming an Islamic bank, the company incurred charges to clean up its NPL. I suspect it had a tough time trying to attract the "good" borrowers. It would appear that it has not really solved the problem