I briefly mentioned about the estimated commission paid to loan agencies by Hong Leong Bank and Maybank in an earlier post. Some readers were curious about how I derived these figures. In this post, I want to dive deeper into this subject by giving you the details on the analysis.

### The method

Before diving into the numbers, let’s take a moment to establish the steps we will take to derive the final figure:

**Step 1: Know the total loan asset**

Loans are assets to banks because they generate income for them. You can always find the banks’ total loan asset in their balance sheet (or the statement of financial position). After knowing the total loan asset of the bank, it is useful to jot down the accompanying footnote. This will be useful later.

**Step 2: Know the consumer loan asset**

The total loan asset shows the combined value from the bank’s different categories of business. Since that we are only interested in consumer loan, we need to break the total value down into consumer only portion. We can get this breakdown in the accompanying footnote.

**Step 3: Derive the ratio of consumer loan**

After knowing the consumer loan portion, this step is simple. You just need to divide the consumer loan amount from the total loan amount.

Example: Bank A has a total loan asset of RM1,000 million and the total consumer loan is RM600 million. The consumer loan ratio is RM600 million / RM1,000 million = **0.6** or 60%.

**Step 4: Estimate the commission paid with reasonable assumptions**

Banks commonly report their commission paid to loan agencies as either overhead or operating expenses, which are both income statement items. Not all banks disclose their commission paid directly in their financial report. For this reason, we may need to make some assumptions or best guesses to facilitate the computation.

Since total commission paid for the year might be for the entire loan portfolio, to compute the commission paid to consumer loan portion, I will multiply the total commission amount and the consumer loan ratio calculated in step 3.

For example, if the total commission paid for the year is RM10 million and the consumer loan ratio is 0.6, I would assume that the total commission paid for consumer loan is RM10 million x 0.6 = RM6 million.

There you have it, the four simple steps to get the total commission paid for the year. Step 1 to 3 is straightforward. The challenge lies in step 4 because the assumptions you put forth can make or break your calculation.

We can now put this method to use.

### Maybank

Let’s kick things off with the largest bank in Malaysia, Maybank. You can download a copy of their latest (2019) financial report here.

**Step 1: Know the total loan asset**

From their balance sheet (page 26), we know that Maybank’s **Loans, advances and financing to customers** amounted to **RM512,291.1 million**. The accompanying footnote for this line item is 12(ii).

**Step 2: Know the consumer loan asset**

Let’s make our first assumption and be conservative in our calculation. We will assume (for the rest of this post) that loan to individuals is the only type of consumer loan.

If we scroll it to footnote 12(ii) on page 75, we know that Maybank’s **loan to individuals** amounted to **RM250,615 million** in 2019.

**Step 3: Derive the ratio of consumer loan**

Dividing RM250,615 by RM512,291.1, the consumer loan ratio for Maybank is about 0.4892 or 48.92%.

**Step 4: Get total commission paid with reasonable assumptions**

I have skimmed through Maybank’s financial report several times and have gotten no indication on the total commission paid for consumer loan. Maybank had a line item called (with a mouth full) “** Net insurance benefits and claims incurred, net fee and commission expenses, change in expense liabilities and taxation of life and takaful fund**” in their income statement. I am guessing it was about Maybank’s insurance business and had little to do with their banking business. To remain conservative in my computation, I am not taking this item into account.

My next best guess is Maybank’s overhead expense. By referring to the accompanying footnote 44 on page 137, we can see that Maybank reported **Marketing Expenses—Others of RM398.9 million**. Since it already separated Marketing Expenses—Advertisement and Publicity, let’s assume that Marketing Expenses—Others is the commission and fee paid for loan sales.

We can now estimate the commission paid for consumer loan sales as **RM398.9 million x 0.4892 = RM195.1 million**.

### CIMB

You can download a copy of their latest (2019) financial report here.

**Step 1: Know the total loan asset**

From their balance sheet (page 29), we know that CIMB’s **Loans, advances and financing** amounted to **RM360,340.1 million**. The accompanying footnote for this line item is 9.

**Step 2: Know the consumer loan asset**

Let’s scroll to footnote 9(ii) on page 97. We know that CIMB’s **loan to individuals** amounted to **RM186,025 million** in 2019.

**Step 3: Derive the ratio of consumer loan**

Dividing RM360,340.1 by RM186,025, the consumer loan ratio for CIMB is about 0.5162 or 51.62%.

**Step 4: Get total commission paid with reasonable assumptions**

In footnote 39 (page 169), CIMB reported “**Fee and Commission Expense**” of RM752 million in 2019. We can estimate the consumer loan commission and fee paid by multiplying this figure and consumer loan ratio, **RM752 million x 0.5162 = RM388.2 million**.

### RHB

You can download a copy of their latest (2019) financial report here.

**Step 1: Know the total loan asset**

From their balance sheet (page 8), we know that RHB’s **Loans, advances and financing** amounted to **RM173,236.7 million**. The accompanying footnote for this line item is 8.

**Step 2: Know the consumer loan asset**

Let’s scroll to footnote 8(b) on page 61. We know that RHB’s **loan to individuals** amounted to **RM90,163.5 million** in 2019.

**Step 3: Derive the ratio of consumer loan**

Dividing **RM90,163.5** by **RM173,236.7** the consumer loan ratio for RHB is about 0.5205 or 52.05%.

**Step 4: Get total commission paid with reasonable assumptions**

By referring to footnote 39 of page 111, we know that RHB incurred “**Fee and commission expenses**” of RM213.2 million in 2019. RHB also reported “**Marketing Expenses—Sales Commission**” amounted to RM93.4 million in footnote 41 of page 113.

To compute the total commission paid for consumer loan, I think it is reasonable to:

- Multiply “Fee and commission expense” and consumer loan ratio: RM213.2 x 0.5205 = RM110.9 million.
- Multiply “Marketing Expenses—Sales Commission” and consumer loan ratio: RM93.4 x 0.5205 = RM48.6 million.
- Get the estimated commission paid for consumer loan by averaging (1.) and (2.), which is
**RM70.8 million**.

### Hong Leong Bank (HLB)

You can download a copy of their latest (2019) financial report here.

**Step 1: Know the total loan asset**

From their balance sheet (page 151), we know that HLB’s **Loans, advances and financing** amounted to **RM136,308.2 million**. The accompanying footnote for this line item is 11.

**Step 2: Know the consumer loan asset**

Let’s scroll to footnote 11(ii) on page 206. We know that HLB’s **loan to individuals** amounted to **RM93,386.2 million** in 2019.

**Step 3: Derive the ratio of consumer loan**

Dividing **RM136,308.2** by **RM93,386.2** the consumer loan ratio for HLB is about 0.6856 or 68.56%.

**Step 4: Get total commission paid with reasonable assumptions**

For HLB, there were no other places where “commission and fee expenses” was reported apart from “**Marketing Expenses – Sales commission and credit card related fees**” which amounted to RM128.6 million under footnote 38, page 249. The commission paid for consumer loan sales is thus, **RM128.6 x 0.6856 = RM88.2 million**.

### Bank Rakyat

You can download a copy of their latest (2019) financial report here.

**Step 1: Know the total loan asset**

From their balance sheet (page 4), we know that Bank Rakyat’s **Financing and advances** amounted to **RM70,967.6 million**. The accompanying footnote for this line item is 10.

**Step 2: Know the consumer loan asset**

Let’s scroll to footnote 10(v) on page 69. We know that Bank Rakyat’s **financing to individuals** amounted to **RM67,910.8 million** in 2019.

**Step 3: Derive the ratio of consumer loan**

Dividing **RM70,967.6** by **RM67,910.8,** the consumer loan ratio for Bank Rakyat is about 0.9569 or 95.69%.

**Step 4: Get total commission paid with reasonable assumptions**

From footnote 33(ii) on page 121, we know that Bank Rakyat had incurred RM80.9 million as “Commission expenses”. We can then derive the total commission paid for consumer loan sales by multiplying **RM80.9 x 0.9569 = RM77.4 million**.

### Affin Bank

You can download a copy of their latest (2019) financial report here.

**Step 1: Know the total loan asset**

From their balance sheet (page 183), we know that Affin’s **Loans, advances and financing** amounted to **RM45,387.9 million**. The accompanying footnote for this line item is 9.

**Step 2: Know the consumer loan asset**

Let’s scroll to footnote 8(b) on page 61. We know that Affin’s **loan to individuals** amounted to **RM22,544.2 million** in 2019.

**Step 3: Derive the ratio of consumer loan**

Dividing **RM22,544.2** by **RM45,387.9** the consumer loan ratio for Affin is about 0.4967 or 49.67%.

**Step 4: Get total commission paid with reasonable assumptions**

By referring to footnote 37 of page 275, we know that Affin incurred “**Commission and referral expense**” of RM153.3 million in 2019. Affin also reported “**Marketing Expenses—Commission and brokerage expenses**” of RM10.0 million in footnote 40 of page 278.

By using the same computation method used to calculate consumer loan sales commission for RHB, we get:

- Multiply “Commission and referral expense” and consumer loan ratio: RM153.3 x 0.4967 = RM76.1 million.
- Multiply “Marketing Expenses—Commission and brokerage expenses” and consumer loan ratio: RM10.0 x 0.4967 = RM5.0 million.
- Get the estimated commission paid for consumer loan by averaging (1.) and (2.), which is
**RM40.6 million**.

### Final thought

The estimated commission paid by these six banks alone for consumer loan sales is about RM860 million. I believe that the total commission paid by both banks and non-bank lenders in 2019 can be as high as RM3.0 billion.

Disclaimer: I based the content of this post solely on my analysis and opinion. Please use it for informational purposes only.