By Faisal Aziz

KUALA LUMPUR, Nov 11 (Reuters) - Malaysia's top lender, Malayan Banking Bhd (Maybank), said on Tuesday its first-quarter net profit fell by 22.2 percent, as net interest income fell and recovery of non-performing loans slowed down. State-controlled Maybank, which has been on a controversial overseas acquisition spree this year amid rising competition at home, warned of greater non-performing loans (NPLs) and moderate loan growth amid a global economic downturn. "The operating environment for the domestic banking sector is expected to become more challenging with moderate prospects for increasing loans growth and heightened risk of greater non-performing loans," Maybank said in its quarterly report.
It added that net profit for the current financial year, ending June 30, 2009, would be lower than the previous year.
Maybank reported net profit of 572.17 million ringgit ($159.8 million) for the three months to Sept. 30, compared with 735.43 million ringgit in the year-ago period.
Analysts in Malaysia do not provide quarterly forecasts, but predict earnings at Malaysian banks, like those of their global peers, will fall in the coming months as the world economic slowdown curbs demand for new loans and slashes the value of assets such as property, leading to more bad debts.
Maybank's profitability may also be affected by the higher cost of borrowing inflicted by the global credit crunch, as the lender needs to raise funds to maintain capital adequacy ratios, analysts said.
Analysts expect Maybank will need to raise up to 11 billion ringgit ($3.1 billion) to fund three acquisitions announced this year: Vietnam's An Binh Bank, Pakistan's MCB Bank, and Bank Internasional Indonesia.
Maybank said its net interest income for the quarter fell by 3.6 percent to 1.27 billion ringgit.
This was due mainly to lower income from deposits placed with financial institutions and from its securities portfolio, and recoveries from NPLs, which fell by 18 percent and 31.3 percent respectively.
Non-interest income for the quarter fell by 21.5 percent, largely due to foreign exchange losses of 125.2 million ringgit, arising from the reversal of foreign exchange gains in relation to the purchase of BII.
In September, Maybank sealed the long-awaited purchase of a controlling stake in BII, Indonesia's sixth-largest lender, after persuading its core shareholders to sweeten the deal.
Maybank paid 4.26 billion Malaysia ringgit ($1.2 billion) for the 55.6 percent stake, and Maybank has already commenced a tender offer for the remaining BII shares at 510 Indonesian rupiah per share. The offer expires on Nov. 19.
Maybank also suffered impairment losses of 242 million ringgit from Pakistan's MCB Bank, in which it holds a 20 percent stake.
Investors had criticised the bank for moving too slowly to expand overseas as its earnings potential in the saturated Malaysian banking market slows, though it stunned many of them by offering high premiums for its acquisitions, especially BII.
Analysts polled by Thomson Reuters Estimates have forecast Maybank will post a full-year net profit of 3.18 billion ringgit, up from 2.93 billion ringgit a year earlier.
Maybank's shares have lost 40 percent of their value so far this year, roughly in line with Malaysia's broader market , on concerns that it was paying too much for acquisitions and as banking shares were pummelled around the world by the fast spreading global financial crisis.

($1=3.550 Malaysian Ringgit)

(Additional reporting by Soo Ai Peng; Editing by Jon Loades-Carter and Simon Jessop) * Reuters 3000 Xtra clients can now view daily data on how reported Asian company earnings compare with analysts' forecasts, as measured by Reuters Estimates. Double click on Keywords: MAYBANK/

(faisal.aziz@thomsonreuters.com; +603-2333 8040; Reuters Messaging: faisal.aziz.reuters.com@reuters.net; Bureau Email: areuters@gmail.com)

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