Potential for AmBank to gain 10% ROE in FY26

The Star

2 days ago

Maybank IB said it maintained its forecast with slightly more conservative assumptions for FY26 versus guidance.
PETALING JAYA: A return on equity (ROE) of 10% for AMMB Holdings Bhd (AmBank) is still realisable in the financial year 2026 (FY26) as the bank progressively builds a larger portfolio of small and medium enterprise (SME) accounts, supported by the rebalancing into cheaper funding sources.
Kenanga Research said the financial institution's first quarter of financial year 2026 (1Q26) results were within expectations, making up 25% of its full-year forecast and 26% of consensus full-year estimates.
On a year-on-year (y-o-y) basis, AmBank's 1Q26 total income rose by 10% as net interest income (NII) (up by 11%) improved from net interest margin (NIM) expansion, which in turn was up by 17 basis points (bps), led by easing funding costs on lower wholesale deposits.
Further, loans grew by 4% from a larger SME book amid a declining retail portfolio.
Meanwhile, non-interest income (NoII) increased by 8%, led by treasury market gains. AmBank's credit cost came in at 25 bps (up by 15 bps) due to the absence of provision writebacks in the prior year.
All in, AmBank's 1Q26 net profit came in at RM516.2mil, up by 3% y-o-y.
The research house said while AmBank maintained its FY26 guidance, its net credit cost target was trimmed from less than 30 bps to about 20 bps, alluding to potentially lumpy writebacks parked under the the oil and gas sector in the coming quarters. This translates to about RM150mil per Kenanga Research's model assumption.
'We are not reflecting this into our forecasts for now, as we believe the group may likely review its provision requirements on its business banking (SME and retail SME or RSME books), which are more susceptible to a more challenging macro outlook.
'Notably, 38% of AmBank's performing loans are unsecured, while business banking's gross impaired loan (GIL) ratio has risen to 2.01% (from 1.74% in 4Q25) following the consolidation of RSMEs,' the research house said in a report yesterday.
Kenanga Research added that against this backdrop, the segment's loan loss coverage (LLC) of 63% fell short of the comfortable 80% threshold on a group-wide basis.
'If the RM150mil writebacks are reallocated as provisions to business banking, its LLC would improve to 78.3%, thereby largely achieving the targeted coverage level,' the research firm said.
Kenanga Research maintained an 'outperform' call on AmBank with a target price of RM6.90.
On the other hand, RHB Research said on the recent policy rate cut, management expects NIM for FY26 to bottom at 1.96% (about five bps quarter-on-quarter) in 2Q26, before the uplift from the repricing of term deposits kicks in. As such, FY26 NIM should still land ahead of the previous year's 1.94%.
'Elsewhere, management has guided for about 20 bps credit costs for FY26, an improvement from the 1Q level, as it has some visibility on lumpy reversals and recoveries ahead,' it said.
RHB Research has a 'neutral' call on AmBank with a target price of RM5.80.
The research house said given that AmBank's NIM is expected to compress in the coming quarters, it prefers larger-cap banks with overseas exposure to weather through a more challenging second half of 2025 for the sector.
Maybank Investment Bank Research (Maybank IB) said it maintained its forecast with slightly more conservative assumptions for FY26 versus guidance, particularly a 3.5% loan growth, average NIM of 1.96% and 24-bps credit cost.
'Our FY26 ROE of 9.5% lags the annualised 1Q26 ROE of 10%. Our assumed 50% dividend payout ratio in FY26 could potentially surprise on the upside,' it said.
Maybank IB has a 'buy' call on AmBank with a target price of RM6.05.