Alliance Financial Group to take earnings hit from OPR cut

KUALA LUMPUR: Alliance Financial Group Bhd (AFG) expects the profitability of its banks to be negatively impacted by the Overnight Policy Rate (OPR) cut by Bank Negara Malaysia but is confident that it will be able to steer through the challenge.
The group's principal subsidiaries are Alliance Bank Malaysia Bhd, Alliance Investment Bank Bhd and Alliance Islamic Bank Bhd.
AFG CEO Joel Kornreich said it will be announcing adjustments in its base rate and base lending rate soon and a reduction in the price of loans will immediately impact its revenue.
"Since we have a large base of casa (current accounts and savings accounts) in our books, a large part of that cannot be repriced, so the net effect will definitely be negative from a profitability perspective, but we think it's manageable," he told a press conference after AFG's AGM here yesterday.
In casa, a portion of this portfolio does not have interest or have very low interest so there is less room to reprice.
"We're quietly optimistic despite a more subdued economic activity that we anticipate will continue throughout this year, and we're able to progress modestly," said Kornreich.
He said it expects to register a high single-digit loan growth in the current financial year ending March 31, 2016 (FY17), from 4.9% in FY16, driven by the SME as well as consumer and commercial segments.
"We aim to outpace the industry's loan growth of 6%-7%," said Kornreich, explaining that the industry is expected to see a slight moderation in loan growth this year from last year's high single digit.
For FY17, AFG expects to be able to hold its net interest margin and aims to keep cost-to-income ratio below 50% and return on equity at 11% or above.
Meanwhile, AFG chairman Datuk Oh Chong Peng said the group is seriously thinking of merging its holding company with its wholly-owned Alliance Bank Malaysia within a year.
Following AFG's recent major shareholding change, Oh said, the new shareholders have not approached the group for changes.
On April 8, AFG, via a stock exchange filing, said three individuals bought AFG's single largest shareholder Langkah Bahagia Sdn Bhd. Langkah Bahagia controls 14.8% of AFG, via its 51% stake in Vertical Theme Sdn Bhd.
Singapore sovereign wealth fund Temasek Holdings Private Ltd, in turn, effectively owns 14.2% of AFG (via its 49% in Vertical Theme) and is said to have management control over AFG.