Back in the 1990's, Malaysia's banking industry was messy - it had over 50 finance companies, commercial and merchant banks. It's highly competitive. It's hard to regulate.
Banks couldn't grow large enough to build a durable competitive advantage.
After the Asian financial crisis in 1998, Bank Negara stepped in. It began to consolidate a bunch of banks — including Maybank, which acquired both Pacific Bank and Phileo Allied bank. Since then, Maybank became the largest bank in Malaysia.
Today, Maybank is also the largest listed company on Bursa with a market cap of MYR120 billion.
Is Maybank a reliable dividend stock?
Let's dive in.
Why Maybank stands out amongst peers
Since the consolidation in the late 1990s, there's still plenty of other banks in Malaysia - Public Bank, CIMB and RHB. All solid names.
Credit: Malaysian banks’ annual reports
Yet Maybank still stands out. Here's why:
Maybank has over MYR1 trillion in total assets, which is substantially more than both CIMB and Public Bank. The same can almost be said for net income, where Maybank had MYR10 billion, more than CIMB's MYR7.7 billion. That's already a 30% difference.
Credit: Malaysian banks’ annual reports
How sustainable are Maybank's dividends
But here's where it gets interesting. Maybank is one of the most consistent dividend payers in the region.
More than that, it pays one of the highest dividends. In fact, while other banks trimmed their dividend payouts during COVID-19, Maybank kept paying shareholders.
And dividend payout has always been higher than its competitors.
The only downside of a higher dividend payout ratio is that Maybank has less retained earnings for growth.
Credit: Malaysian banks’ annual reports
However, Maybank doesn't bother.
Over the last five years, its assets have grown by 25%, net income by 55% and dividends by 17%. Not too bad.
Most banks would choose between rewarding shareholders or growing the business. Maybank does both.
Maybank's a profit engine for dividends
So far, Maybank's net interest margin (NIM) isn't blowing anyone away. But it's stable. That's critical in any banking business.
Now, net interest margin is an important metric. Banks earn profits by lending out its deposits. The wider the interest rate spread between its interest earned on loans and interest paid on deposits, the more profitable they are.
Since Maybank has a massive asset size, even a stable NIM produces more income than its peers.
Credit: Malaysian banks’ annual reports
One thing I watch closely is Maybank's liability structure. Because it has the lowest deposit-to-liability ratio, it relies more on borrowings to make its loans. It sounds risky, but it's not.
Maybank has at least 70% of its liabilities in deposits, which is still considered safe.
Why does this matter? Well, banks have a funding cost. And deposits are considered the cheapest funding course - paying very low interest rates to their depositors.
Since Maybank has the lowest deposit-to-liability ratio, this suggests Maybank is probably more aggressive in borrowings than its competitors. During market stress, Maybank is technically more exposed to more debt, which makes the bank seem risker.
However, I'm not worried because the deposit ratio is still over 70%, which is still considered safe.
Credit: Malaysian banks’ annual reports
Maybank's hidden moat: Islamic Banking
Here's where this has caught my attention. Maybank is more than just Malaysia's biggest bank. It's at the forefront of Islamic finance - one of the fastest growing niches in global banking.
Right after Saudi Arabia and Iran, Malaysia has the third largest 12% global market share in Sharia compliant assets.
Over 60% of Malaysia's population is Muslim. For them, banking must comply with Shariah principles - no interest (riba), no speculation.
For practicing Muslims, these values are important. That's where Islamic banking comes in. Not many banks offer Islamic banking.
What's more, the Islamic finance space is growing: S&P Research expects the Islamic banking industry to grow by high single digits. So, with Maybank, it's great to see they have a differentiating business where they currently have about 25% of its profits come from Islamic banking operations.
Maybank's a steady dividend payer
Over the last ten years, Maybank has been a steady dividend payer. At current shares of MYR9.95/share, it paid dividends of MYR0.61/share. And it has grown an average dividend rate of 17% per year.
If Maybank continues growing dividends at this pace, dividend yield on cost could reach over 16% in 30 years. Even if growth slows, the historical yield has rarely dipped below 5%.
Credit: Malaysian banks’ annual reports
Think about this, there's still plenty of infrastructure in Malaysia that needs to be built, many businesses continue to expand. There's plenty of room to grow and Maybank will be there to finance that growth.
Key risks for dividend investors
Couple of things:
- Liquidity risk: Malaysia's stock market is small. It's less liquid than Singapore or Hong Kong stock markets.
- Interest rate cuts: With the Fed potentially cutting interest rates, this could shrink bank margins if Maybank can't grow its assets fast enough. Thus, we could expect profits to grow at a slower pace if Bank Negara cuts the Overnight Policy Rate (OPR). This is because Maybank would have to charge a lower interest rate when giving out loans, but their cost of operations would generally remain the same and competition wouldn't allow Maybank to pass on the lower interest rate to bank depositors.
- Tariff risk: Malaysia exports heavily to the US - with exports more than doubled imports in 2023. If President Trump's aggressive tariffs return, export business could suffer, which could impact Maybank's loan business - leading to rising bad loans.
Having said that, Maybank has survived and thrived through market cycles - 1998 crisis, 2008 global financial crisis and COVID-19 pandemic.
My final thoughts
Malaysia as one of the ASEAN Tigers has always been labeled as one of the countries with greater potential.
When Malaysia reaches developed status, Maybank will be riding on this tailwind.
What's more, Maybank Islamic is also something not every bank has. So, for investors who are a believer in the space and want exposure, Maybank would be a good pick as well.
However, more research would probably be needed to determine how material the Islamic banking space would be as a growth driver for Maybank.
Credit: Malaysian banks’ annual reports
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