State-controlled Maybank, Malaysia's largest listed firm and a bellwether for the country's financial sector, said net profit fell to 646.72 million ringgit ($170.2 million) for the quarter to the end of June from 678.30 million a year earlier.
But full-year profit rose 21 percent to 2.42 billion ringgit - a record for the bank - fuelled by strong earnings growth in the first nine months. Both the quarterly profit and the annual result beat market forecasts as polled by Reuters Estimates.
"Overall, it's looking quite all right," said one banking analyst after a company briefing. "Return on equity at 17.3 percent is the highest since the 1997/98 financial crisis."
"It was quite an exciting year," Chief Executive Amirsham A. Aziz told reporters.
"The result for the group was buoyed by the significant growth of its Islamic banking operations," he added in a statement. He also attributed the record annual profit to improved loan quality, with bad loan charges falling by a third in the quarter to 123.05 million ringgit.
Loan growth at 5.1 percent for the year, however, was well below growth rates reported by some of Maybank's smaller rivals, such as fourth-ranked Public Bank, which notched up 11 percent loan growth for the six months to June 30.
The fall in loan-loss provisions chimed with results from other regional banks, such as Singapore's DBS, Southeast Asia's biggest bank by assets. DBS in July reported a leap in second-quarter earnings on lower bad-loan provisions and a pick-up in lending in a rebounding economy.
Maybank and rival Commerce Asset-Holding Bhd were named at the weekend among the 10 groups of potential bidders for a 51 percent stake in Indonesia's seventh-largest lender, Bank Permata, a sale that could raise at least $170 million for Jakarta.
"To grow in Indonesia is a natural process for us," the Maybank CEO said. "We already have a one-branch operation in Indonesia, and to ride on an expansion via the one-branch operation is not the right thing to do. Now Permata is available."
Permata has 303 branches and 457 ATMs nation-wide.
Amirsham predicted the galloping domestic economy would help loan growth pick up to 6-8 percent for the current financial year, with the economy widely thought to be running at above 6.5 percent growth in calendar 2004.
Analysts said the target was within reach.
"Six to 8 percent is possible as there are six months more of 2004 and the growth momentum will still be there," said Tan Teng Boo, managing director of online investment advisory icapital.biz.
"We would like to see NPLs (non-performing loans) going down to about 5.0 percent over the next year," Amirsham said. Bad loans, as a proportion of the bank's loan book, stood at 5.97 percent in 2003/2004.
Despite the bright outlook and fall in bad-loan charges, Maybank's fourth quarter was pinched by a 3 percent fall in non-interest income to 438.73 million ringgit and an 8 percent rise in overhead costs to 677.38 million ringgit.
The average expectation of analysts surveyed by Reuters Estimates had been for Maybank to report an 8.4 percent drop in fourth-quarter net profit to 577 million ringgit.
The bank also raised the full-year dividend to 60 cents, up from 52 cents a year earlier.