Alliance Bank unveils 5-year roadmap

The key focus of ACCELER8 2027 would be to diversify the bank’s earnings base through various system changes and third-party collaboration

by RUPINDER SINGH / pic TMR FILE

IN AN effort to stage a new leg of growth over the next five years, Alliance Bank Malaysia Bhd (ABMB) unveiled its new five-year strategic plan last week called ACCELER8 2027, which looks to expand growth beyond small and mid-size enterprises (SME).

The new five-year roadmap will see ABMB broaden its vision towards becoming “The Preferred Banking Partner”, from a previous focus on SME and business clients.

Targeted segments within the consumer banking space include young professionals, as well as high net-worth individuals. ABMB will also be looking to expand its geographical footprint in the northern states for example Kedah and Penang, as well as East Malaysia.

In terms of its competitive advantages, the bank highlighted speed, personalisation and service excellence as key focus areas for the next four years.

In a nutshell, the key focus of ACCELER8 2027 would be to diversify the bank’s earnings base through various system changes and third-party collaboration.

In a web-based briefing on Jan 11, ABMB’s Group CEO Kellee Kam explained the key highlights of ACCELER8 2027 which includes strong loan growth targets of 8%-10% and high return of equity (ROE) of above 11% in the next few years.

Good Effort to Progress

Following the briefing, CGS-CIMB Research said it is positive on ABMB’s efforts to refresh its strategic plans under the new CEO.

“In our view, this has added some new dimensions to its strategic focuses (such as supporting businesses’ needs through their lifecycle, targeting young professionals, exploring more collaborations with third parties etc).

In addition, it said, ABMB guided for ambitious targets to be achieved under ACCELER8 2027, showing its commitment to improving its financial performance in the next five years.

CGS-CIMB Research reckons that the implementation of ACCELER8 2027 would contribute to the improvement in the financial performance of Alliance Bank.

However, it noted that the positive impact could be diluted since most banks are also embarking on transformation programmes with similar focuses, and there are some negative developments in the banking industry, such as weak fee income growth and possibly cost pressures in 2023 amid heightened inflation.

The research firm did point out that ABMB can leverage on its strengths and successful business model in the SME segment to increase its market share in the consumer and corporate segments.

For instance, it said that the bank can offer financial products (including loans) to the owners and employees of the SMEs that have business relationships with the bank.

Furthermore, it said that the fast-growing SME customers could eventually turn into corporate accounts, which would help ABMB to increase its fee income for treasury or even investment banking divisions, if they are able to retain the customers.

CGS-CIMB Research reckons that the implementation of ACCELER8 2027 would contribute to the improvement in the financial performance of ABMB.

To recap, ABMB’s old plan focused on becoming the preferred bank of business owners. Priorities then were to acquire more SME customers and drive market share expansion, deepen customer engagement in attempt to build dual personal business banking relationships, and gain efficiencies.

According to CGS-CIMB Research, the bank was successful in carrying out its business strategies after looking at its achievements. Notably it said, ABMB’s SME loan market share increased 1.6 percentage points in the financial year 2022 (FY22) versus FY18, the number of dual relationship business owners doubled in FY22 versus FY20, its wealth income grew 34% in FY22 versus FY20, unit processing cost decreased 34% in FY22 versus FY19, and its cost-income ratio fell below 5ppt in FY22 versus FY18.

ACCELER8 2027

During the briefing, ABMB also unveiled the financial targets which includes targeting loan growth of 8%-10% in the next few years.

However, CGS-CIMB deemed the high loan target as challenging as it is significantly higher than the normalised growth of 4%-5% for the industry and one of the strongest in the sector.

“Our projected loan growth for ABMB is more conservative at 6%-7% for FY3/23-24F and 5.5% for FY3/25F, which is considered an improvement from 4.6% in FY3/22.

ABMB is also targeting an ROE of more than 11%, which could be in the top quartile in the banking sector to be achieved by 2027.

“We believe that this is attainable as we project ROE of 11%-12% for ABMB in FY23-FY25F. In fact, it recorded an annualised ROE of 11.5% in 1HFY3/23,” the research house said.

In conclusion, CGS-CIMB Research maintains its ‘Hold’ call on ABMB as it expects an upturn in its loan loss provisioning in 2HFY23F.

“We retain our FY23-FY25F earnings per share forecasts and dividend discount model (DDM)-based target price of RM3.85,” it said.

The 8 Pillars for ACCELER8 2027

1. Continued velocity for SME expansion strategy

Scaling up its sales capacity and equipping its salesforce (a customer relationship management) system with better digital tools.
Leveraging digital channels to reach a wider base of SME customers.

2. Supporting its business customers through their lifecycle

Aiming to be the main banker of choice for businesses across their lifecycle (from the setting up of small businesses to larger businesses going for initial public offering).

3. Broadening consumer business while targeting the segments with attractive returns.

Targeting young professionals or the HENRY (High Earners, Not Rich Yet) with strong future growth potential.
Better serving high net worth (HNW) customers by meeting their personal and business financial needs.

4. Targeting resilient ecosystems across their value chain

Creating holistic solutions for targeted ecosystems (eg green technology).
Building deeper domain expertise while partnering third-party providers to offer differentiated solutions.

5. Becoming the regional champion for selected economic corridors

Capturing higher share of growth from fast-growing economic corridors (eg the ones in northern Malaysia and East Malaysia).
Strengthening and empowering regional teams to deliver fast and relevant solutions to clients.

6. Driving synergies and value creation in its corporate and capital market businesses

Leveraging enhanced client coverage model.
Intensified account planning to stay close and relevant to customers.

7. Accelerating the growth in Islamic banking businesses by leveraging on unique propositions

Focusing on unique/innovative propositions (eg halal in One programme).
Scaling up sustainability solutions.

8. Capitalising on partnerships to scale up product offering and distribution

Developing strategic partnerships with the goal of expanding distribution reach, widening product range and offering, and tapping into more nascent innovations to future-proof the bank.