August 30, 2017 / 5:24 AM / a year ago

UPDATE 2-Malaysia's Maybank reports surprise increase in profitability

* H1 NIM up 13 bps, confounding FY contraction forecast

* Q2 net profit up 43 pct; net interest income up 10 pct

* Expects “satisfactory” 2017 earnings (Adds comments from CEO and CFO, further earnings details, PNB’s Islamic finance suggestion)

KUALA LUMPUR, Aug 30 (Reuters) - Malaysia’s largest bank by assets, Malayan Banking Bhd (Maybank) saw a key gauge of profitability expand in the first half of 2017, confounding its January forecast of a contraction, due to investment gains and cheaper sources of loan funds.

The lender on Wednesday said its net interest (NIM) - the difference in interest paid and earned - grew 13 basis points to 2.41 percent, boosted by returns from stocks and bonds, as well as growth in current and savings account deposits where Maybank has recently been concentrating efforts.

That compared with full-year guidance of a 5 to 10 basis point contraction. The bank said it will now focus on maintaining NIM expansion rather than loan growth.

“We are seeing a lot of (NIM) expansion now but in the second half we expect to see some contraction,” Group Chief Finance Officer Amirul Feisal Wan Zahir said at a briefing.

The result comes as Maybank recovers from a difficult 2016 when it had to set aside an unusually large amount of funds to cover losses from loans to the oil and gas sector, including those to now-bankrupt Swiber Holdings Ltd.

Outstanding loans grew 6.4 percent in January-June from the same period a year prior, outpacing the industry’s 5.7 percent. That compared with the lender’s 2017 target of 6 to 7 percent.

“When we look at the full year, I think we will be growing in line with the industry,” Feisal said of outstanding loans.

The bank also said it expects 2017 earnings to be “satisfactory given the ongoing challenging global environment”.

Earlier on Wednesday, it said April-June net profit grew 43 percent to 1.66 billion ringgit ($388.94 million) as it was able to set aside less cash to cover bad loans. Net interest income rose about 10 percent to 3.04 billion ringgit.

Group Chief Executive Officer Abdul Farid Alias also said Maybank was discussing a suggestion from major shareholder Permodalan Nasional Bhd (PNB), a government-linked asset manager which wants to create more Islamic funds, to boost investment in assets compliant with shariah law.

PNB wants Maybank to convert 20 percent of equity to shariah-compliant shares, in a plan that could result in an asset worth 20 billion ringgit.

“Maybank Islamic as an Islamic banking window has worked well for the group. It’s a long way to go to say if we will do this,” Farid said. During discussions on the matter, the board decided not to create subsidiaries or different classes of shares with different rights, he said.

Farid also dismissed rumours that the lender could spin off shariah unit Maybank Islamic Bhd.

$1 = 4.2680 ringgit Reporting by Liz Lee; Editing by Christopher Cushing

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