Alliance Bank’s 4Q18 earnings down 3.9% on restructuring costs

By NG MIN SHEN / Pic By AFIF ABD HALIM

Alliance Bank Malaysia Bhd’s net profit slipped 3.9% to RM112.87 million in the fourth quarter ended March 31, 2018 (4Q18), from RM117.39 million posted a year ago — partly due to transformation investments in restructuring, technology, personnel and marketing.

Operating expenses increased 17.1%, or RM31 million during the quarter, mostly on restructuring costs, the group told Bursa Malaysia yesterday.

Quarterly revenue rose 9.9% to RM403.53 million from RM367.25 million registered a year ago, mainly on net interest income and other operating income.

The bank has proposed a second interim dividend of 6.8 sen. Together with the first interim dividend, the total dividend declared for the financial year ended March 31, 2018 (FY18), stands at 15.3 sen with a dividend payout ratio of 48%.

For FY18, the banking group’s net profit was 3.7% lower at RM493.23 million against RM512.12 million recorded in the previous year.

Revenue, however, climbed 6.8% to RM1.57 billion in FY18 from RM1.47 billion the year prior, which Alliance Bank said was its highest growth in five years.

“This is due to higher net interest margin (NIM) as a result of our focus on growing better risk-adjusted return (RAR) loans and of non-interest income,” group CEO Joel Kornreich (picture) said in a separate statement.

The bank’s NIM improved 14 basis points to 2.4%, while net interest income including Islamic net financing income grew 5.5% year-on-year (YoY) on focus in better RAR loans.

Non-interest income increased 11.9% YoY, attributable to improvements in banking services fees, wealth management fees and trade fees, as well as realised gains from available- for-sale investment.

Net loans and advances saw a 2.6% growth YoY to reach RM40 billion, while gross impaired loans ratio stood at 1.4%.

Better RAR loans comprised 36% of the bank’s portfolio compared to 31% a year ago, with a 19.3% YoY growth coming from small and medium enterprises (SMEs), commercial, unsecured consumer loans and Alliance One Account.

SME and commercial loans expanded 9.4% YoY, while consumer unsecured loans rose 16.7% YoY.

Kornreich said Alliance One Account — a loan consolidation product aimed at helping customers reduce their financial commitments — has gained traction since its launch a year ago, with loan balances reaching over RM1 billion in FY18.

Operating expenses for FY18 rose 14.8% YoY, mainly due to investments in transformation initiatives.

“Transformation expenses amounted to RM74.2 million, of which RM36.4 million was for restructuring cost. As a result, cost-to-income ratio increased to 50.5% with transformation, from 47.1% a year ago,” the group said.

Its common equity tier 1 ratio stood at 13.4%, while total capital ratio for the bank rose to 18.3% from 17.7% a year ago.

“The bank continues to undertake proactive capital management to maintain healthy capital levels that are supportive of future business expansion and are able to withstand Day One impact from the Malaysian Financial Reporting Standards 9,” it said.

Going forward, the group will be scaling up for growth in its core businesses, while digitising key processes to deliver enhanced customer experience and improve operational efficiency.

“Our strategic transformation initiatives will start having a positive impact on the financial trajectory for the coming year. We, therefore, expect profitability to improve,” it said.