AFG can live on its own without M&A, says CEO

by NG MIN SHEN

ALLIANCE Financial Group Bhd (AFG) said the bank is financially strong and can exist as an independent entity without having to merge with other lenders.

CEO Joel Kornreich said AFG views itself as “completely sustainable the way it is” with solid financials. The bank is already working to boost efficiency and profitability.

“We are absolutely certain that we are a very sound and a sustainable financial group. We believe with the investments we are making, we will be able to lift our return on equity (ROE),” he said at a media briefing after its AGM and EGM in Kuala Lumpur yesterday.

The group is aiming for an ROE of 11% to 12% in its financial year ending March 31, 2018 (FY18), marginally higher than its ROE of 10.5% in FY17.

“We can definitely live as a single person. If somebody wants to marry us, that will happen when it happens. But we don’t want to speculate on that. We just know that we can live very well as a single bank,” Kornreich said.

Talks about the consolidation of the local banking industry heightened after AMMB Holdings Bhd (AmBank) and RHB Bank Bhd announced their proposed merger last month.

The AmBank-RHB proposed merger had sparked speculation of more acquisitions in the sector — especially among the smaller lenders.

AFG chairman Datuk Oh Chong Peng said the banking group has not received any merger and acquisition (M&A) offers.

“As far as we know, nobody is courting us. Nobody has said anything about wanting to come in and take over or anything like that.

“Nothing is in the pipeline as far as we know, but we don’t know what the shareholders are doing. They could have something planned, but we have no clue,” he said.

On business, the mid-size lender expects mid-to slightly higher single-digit growth in revenue and total loans for FY18.

Kornreich said loan growth will be driven by the commercial and corporate segments, while the consumer lending section will see mixed outcome as the lender will continue to see the run-off of its hire purchase portfolio.

“Towards the end of FY18, we will also see a significant change in the trajectory of our mortgages. For the last couple of years, the growth in mortgages has tapered off. In fact it contracted last year, but we expect to originate about RM1 billion this year with the AllianceOne Account,” he said.

He added that between now and FY22, the group anticipates its AllianceOne loans to reach RM7 billion, which is about a third of the group’s mortgage portfolio.

The banking group’s loans to small and medium enterprises (SMEs) will also continue to drive growth with a projected expansion of 14% in FY18, following a 9.3% year-onyear increase in FY17.

The group’s net loans including Islamic financing grew 1.5% to RM39 billion in FY17 compared to a year ago, with focus on better risk adjusted return loans within the SME, commercial and consumer lending segments, which grew at an annualised rate of 13.6% in FY17.

While its net interest margin (NIM) increased 11 basis points (bps) to 2.26% in FY17, the group is expecting more moderate growth of 5bps in NIM for FY18.

As for the upcoming implementation of Malaysian Financial Reporting Standard 9: Financial Instruments (MFRS 9), Kornreich said it was too early to judge the ongoing impact of MFRS 9 on the bank’s credit costs.

He said the group’s credit costs would not be significantly affected for its financial year ending March 2018 as the implementation of the standard will start on April 1, 2018.

“Like every other bank, we will make a one-time adjustment in FY18, but we don’t expect this adjustment to be very large as we have already booked a 1.2% regulatory reserve which had to be made anyway, so that buffers the impact,” Kornreich said.