KUALA LUMPUR: More than seven decades after it began as a building society helping civil servants own homes, MBSB Bhd has evolved into a diversified financial services group.
But turning that transformation into stronger and more sustainable earnings remains a challenge.
Chairman Datuk Wan Kamaruzaman Wan Ahmad acknowledged that legacy financing issues, integration challenges and fierce competition continue to weigh on earnings, despite improvements in the group's funding position and expansion of its financial services.
He said the group is likely to fall short of some of its targets this year, particularly on profitability.
He also indicated that reaching the 20 per cent current account-savings account (Casa) target by year-end could prove difficult amid increasingly intense competition for deposits.
For Wan Kamaruzaman, who assumed the chairmanship in January 2024, the priority is not simply to expand the group's financing portfolio, but to ensure that growth does not come at the expense of asset quality.
He said shareholders supported management's cautious approach to deploying capital rather than pursuing aggressive financing growth to boost short-term profits.
"The shareholders have more or less agreed with the management that we need to take this very cautiously," he told Business Times in an interview.
He said expanding financing too aggressively could improve profitability in the short term, but risk creating more impaired accounts in the years ahead.
"So the shareholders have felt that we need to do the right thing rather than just expand the books and make the profits," he said.
The Employees Provident Fund (EPF) is MBSB's largest shareholder with a 56.55 per cent stake, followed by Permodalan Nasional Bhd (PNB) with 12.56 per cent, according to Bursa Malaysia data.
Despite these challenges, MBSB has made progress in several areas under its three-year FLIGHT26 transformation programme, which runs from 2024 to 2026.
The strategy focuses on strengthening its funding base, expanding financing, increasing non-funded income and improving operating efficiency.
The group's Casa ratio improved from around six per cent in 2023 to 15.5 per cent at the end of 2025.
Its cost of funds also declined from 3.7 per cent in 2024 to 3.4 per cent last year.
Although MBSB had succeeded in lowering its cost of funds, Wan Kamaruzaman cautioned that aggressive deposit pricing by competing banks could reverse some of those gains.
He said the group considered funding costs below 3.5 per cent comfortable, but some banks were offering rates of around four per cent for corporate deposits.
Such competition, he said, could push MBSB's funding costs above its preferred level.
Meanwhile, non-funded income rose 76 per cent to RM280 million in 2025, reflecting efforts to diversify income sources beyond financing activities.
However, the improvements have yet to translate into stronger overall profitability.
MBSB's net profit fell 31.3 per cent to RM279.5 million in 2025 from RM406.8 million a year earlier.
In the six months ended June 30, 2026, its net profit declined 58.7 per cent to RM74.36 million from RM180.24 million a year earlier.
Its cost-to-income ratio stood at 65.5 per cent as of June 30, compared with 65.8 per cent in the preceding period.
This compares with FLIGHT26's target of 50 per cent by the end of 2026.
THE BURDEN OF LEGACY FINANCING
MBSB's legacy financing challenges can be traced partly to its transition from a housing financier into personal and business financing.
Established in 1950, the institution initially helped civil servants purchase homes at a time when access to housing finance was limited.
But as Malaysia's banking industry developed, commercial banks gained a competitive advantage through their ability to mobilise deposits at lower funding costs.
MBSB, which did not have the same access to deposit funding, gradually diversified into personal financing and lending to small and medium enterprises (SMEs).
Personal loans eventually became the largest segment of MBSB's lending portfolio.
Wan Kamaruzaman said some personal financing facilities offered in the past carried tenures of up to 25 years, creating a mismatch between borrowers' remaining working years and their repayment obligations.
Much of the financing was repaid through salary deductions.
"I think that (to offer such long-tenure financing) is beginning to haunt us a little bit," he said.
In July 2013, Bank Negara Malaysia introduced measures capping personal financing tenures at 10 years, down from the previously permitted 25 years, to curb excessive household debt.
The new limit also applied to MBSB, although financing applications submitted before the measures took effect were unaffected.
The mismatch contributed to non-performing loans that continue to affect the group's asset quality.
MBSB's gross impaired financing ratio improved slightly to 6.23 per cent at the end of June, from 6.33 per cent at the end of 2025. However, this was higher than the 5.33 per cent recorded at the end of 2024.
The group had written off about RM890 million in impaired financing in 2024, contributing to a reduction in its reported impaired financing balance that year.
Another source of impaired financing was MBSB's Ihsan-i personal financing programme under the government's EPF Account 2 Support Facility, introduced to assist individuals facing financial difficulties following the Covid-19 pandemic.
Wan Kamaruzaman acknowledged that financing under the programme had experienced high levels of non-performance, although he said the situation had been managed.
He said reducing the group's overall impaired financing ratio would take time as older facilities matured and were replaced by new financing subject to stricter approval criteria.
MBSB is ultimately targeting a ratio below two per cent, closer to industry levels, said Wan Kamaruzaman.
Construction-related financing has also presented challenges.
Wan Kamaruzaman said some SME borrowers in the sector had been affected by higher funding costs, rising building material prices and increased labour expenses.
MBSB has consequently become more selective in extending construction financing, assessing applications on a case-by-case basis.
The group has also tightened its monitoring of business borrowers by requiring them to maintain operating accounts with the bank, giving it better visibility over their cash flows and financial performance.
INTEGRATION: OPPORTUNITIES AND CHALLENGES
Beyond legacy financing, MBSB has undergone two major acquisitions that significantly expanded its business.
The acquisition of Asian Finance Bank, completed in 2018, enabled MBSB to establish a full-fledged Islamic banking operation under Bank Negara's regulatory supervision.
The acquisition of MIDF in 2023 marked another milestone, adding development finance and investment banking capabilities to the group.
Wan Kamaruzaman said the combination had enabled MBSB to offer more comprehensive financial solutions, particularly to SMEs.
Businesses can now access development financing schemes, grants and subsidies alongside conventional banking facilities, allowing MBSB to support their financing requirements at different stages of growth.
But bringing together businesses with different organisational cultures and operating structures has not been straightforward.
Wan Kamaruzaman acknowledged that the integration of MIDF came with difficulties, particularly in aligning employees, reporting requirements and governance structures.
He said the differences had contributed to delays in the cultural integration of the two institutions.
"It's actually an institution of two different cultures coming together. It was not easy," he said.
The group has sought to address these challenges through greater employee engagement, organisational changes and a review of remuneration packages.
Wan Kamaruzaman said MBSB had spent about RM29 million implementing a revised remuneration structure across the group.
Graduate starting salaries have also been raised, while a long-term incentive scheme has been introduced to align employees' interests with the group's profitability and share price performance.
He said attracting and retaining the right talent was essential to bringing the different businesses together.
PREPARING FOR THE NEXT CHAPTER
With FLIGHT26 approaching its conclusion, MBSB is preparing a new four-year strategic plan covering 2027 to 2030.
Wan Kamaruzaman said the group was reviewing its strategic direction with the assistance of external consultants, focusing on improving productivity, operational efficiency and its range of financial products.
He acknowledged that MBSB still has room to improve its turnaround times and offer a broader suite of financial services to customers.
The group is also seeking to expand beyond its traditional customer base of civil servants and corporate clients, with greater emphasis on attracting higher-income customers through digital banking products and other financial solutions.
For an institution that began by financing home ownership before expanding into Islamic banking, development finance and investment banking, the next phase will be about demonstrating the financial benefits of that transformation.
Wan Kamaruzaman said responsible stewardship meant ensuring that the institution was in a stronger position when the time came to hand over its leadership.
Rather than pursuing rapid growth at the risk of accumulating more bad loans, he said the priority is to leave behind a healthier financing portfolio that would allow future management to take the group forward.
For MBSB, the challenge is therefore not merely to grow bigger, but to show that its expanded businesses can deliver stronger returns without repeating the financing problems of the past.
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