Alliance Bank 1Q earnings hit by impairment, OPR cut

by NG MIN SHEN/ pic by TMR FILE

ALLIANCE Bank Malaysia Bhd’s move to make a full provision and impairment of RM74.9 million and margin compression as a result of the cut in the Overnight Policy Rate (OPR) in May resulted in its earnings plunging 43.8% year-on-year (YoY) to RM76.69 million in the first quarter ended June 30, 2019 (1QFY20).

The bank noted the damage to its net profit in 1Q was mainly due to expected credit losses stemming from the impairment of a few large accounts, as well as continued investment in information technology (IT) infrastructure to support its transformation initiatives.

Revenue for the period was 1.5% higher YoY at RM406.93 million, helped by a 2% YoY growth in net interest income (NII) on loan expansion and an improved loan mix from better risk- adjusted return (RAR) loans.

“We remain vigilant in managing our credit portfolio, and prudent in our provisioning in view of the challenges enterprises face,” Alliance Bank group CEO Joel Kornreich said in a statement to the exchange yesterday.

NII rose to RM248.04 million in the quarter from RM243.11 million previously, although the group’s net interest margin (NIM) fell by three basis points (bps) YoY to 2.4% mainly due to the 25bps reduction in the OPR in May.

“The bank will continue to pursue an efficient funding mix to mitigate the OPR cut impact, and guide NIM for the financial year ending March 31, 2020 (FY20), to be between 2.4% and 2.45%,” the bank stated.

Gross loans and advances grew 6% YoY to RM42.7 billion, outpacing industry loan growth of 4.2%. Loans to small and medium enterprises (SME) rose 10.4% to RM8.8 billion, while commercial loans expanded 6.6%. The personal financing portfolio jumped 22.9% to RM2 billion.

Efforts to improve the bank’s loan mix showed as better RAR loans made up 44% of its portfolio, compared to 37% last year.

Customer-based funding rose 8.8% to RM46.6 billion from RM42.8 billion the year prior, supported by fixed deposits growth of RM2.8 billion YoY.

Gross impaired loans ratio climbed 18bps quarter-on-quarter (QoQ) to 1.3%, versus the industry average of 1.52%.

“The increase was mainly from the residential properties and personal financing portfolios, as well as a few large accounts. This was partly mitigated by the ongoing effort to regularise the residential properties portfolio through proactive collection efforts and repayments in the non-residential properties portfolio from several major business accounts,” the group said.

NII came in at RM75.2 million “amid the challenging external environment”, with client-based fee income declining 7.8% YoY, mainly due to the weaker market environment, particularly in the unit trust and brokerage businesses, foreign-exchange sales and trade fees.

The bank’s cost-to-income ratio stood at 48.7%. Operating expenses rose RM14.8 million YoY, mainly due to investments in IT infrastructure and sales force expansion.

QoQ, net credit cost increased 3.6bps to 13.1bps due to full provision for a few large accounts. The bank said it has since initiated “recovery actions” on the affected accounts.

For FY20, the group intends to continue growing its consumer and SME banking business by implementing new digital propositions and forming ecosystem partnerships to broaden acquisition.

Alliance Bank closed 10.15% or 33 sen lower at RM2.92 yesterday, valuing the lender at RM4.52 billion.