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First Quarter Analyst Briefing as at 30 June 2009
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First Quarter Analyst Briefing as at 30 June 2009

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This is the First Quarter Analyst Briefing as at 30 June 2009 for Alliance Financial Group Berhad (AFGB).

This is the First Quarter Analyst Briefing as at 30 June 2009 for Alliance Financial Group Berhad (AFGB).


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  • 1. ALLIANCE FINANCIAL GROUP TELE-CONFERENCING WITH ANALYST - 1QFY10 Results ended 30 June 2009 - STAYING ON COURSE 1
  • 2. AGENDA • 1QFY10 Performance & Business Review 2
  • 3. Key MessagesCharting through turbulent times• FOMC – economic activity is leveling out and accommodative policy is here to stay• Increasingly liberalized regulatory and operating environmentWell positioned to respond to market shifts• Focusing on core strengths in Consumer and Commercial Banking• Continuing to build long-term deposit funding base• Harnessing the energy of 3-year business transformation programDriving and leveraging our competitive position• Drive asset quality via an integrated risk management, resulting in minimal credit losses• Strengthen balance sheet with strong capital position and high liquidity• Drive cost efficiency through operational excellence• Emphasize superior service levels 3
  • 4. Charting Through Turbulent Times Charting Through Turbulent Times1,600 30 Sub-prime & Related Crisis ② ④1,500 ①③ ① Fannie Mae – write down, to raise capital ⑤ ⑥ 20 ② Bankcorp – loan defaults, to raise capital1,400 ⑨ ⑧ ⑦ ③ Merrill Lynch – write off, sells shares ⑩ ④ Citigroup – loss on credit costs, cut jobs1,300 ⑪ 10 ⑤ Bear Stearns boss Cayne resigns ⑫ ⑥ Citigroup – increases stock offering1,200 Ⓒ 0 ⑦ Lehman cuts 130bn of assets1,100 ⑧ Blackstone posts $251mn loss ⑨ Freddie Mac dips below $10 since 19921,000 -10 ⑩ JP Morgan takes $1.5bn hit in Jul08 Ⓐ ⑪ Morgan Stanley plans add layoffs 900 ⑫ GE - FDIC backing for $139bn in debt -20 800 Stimulus Programme KLCI S&P500 3-MA Exports - rhs Ⓑ 700 -30 Ⓐ Malaysia - RM7bn ($1.93bn) stimulus Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Ⓑ US - $787.2bn economic stimulus package by President Barack Obama Calm before Storm Sub-prime & Crisis Green Shoots Jan’ 05 to Oct’ 07 Oct’ 07 to Dec’ 08 Jan’ 09 - now Ⓒ Malaysia - RM60bn “mini budget” 4
  • 5. Results Achieved Business Fundamentals Remain Intact Included RM51.8m Net NPL Ratio (%) Overhead provision written Prudently, made YTD Profit Before Tax (RM’m) back 502 additional Loan Loss Coverage (%) RM56.5m SP CASA Ratio (%) 303.3 8.0% 255 298 9.5% 151 230 62.4 14 (1QFY10 only) 5.5% 4.4% 3.3%(283) 2.3% 2.2% 1.9% 1.8% 91% 100% 98% 72% 80% 93% 68% 33% 51% 33% 32% 35% 35% 35% 33% 35%31% 49% Mar 06 Sept 06 Mar 07 Sept 07 Mar 08 Sept 08 Dec 08 Mar 09 June 09 FRS 139 Initiative Maximizing Charting Through & Restructuring Revenue Turbulence Time April’ 06 to Mac’ 07 April’ 07 to December’08 Dec 08 onwards 5
  • 6. 3 Months Ended 30/6/09 Results Highlight 30 Jun 09 30 Jun 08 Variance • Group PBT decreased 62.6% RMmn RMmn % compared to corresponding period lastOPERATING REVENUE 387.9 421.5 -8.0 year on the back of higher impairment on securities by RM25.9mil made onNet Interest Income 141.8 181.1 -21.7 potential losses against a decliningIncome From Islamic Banking 58.8 39.1 50.4 economic conditions.Net Interest Income + Income from • Higher allowance for loans primarilyIslamic Banking 200.6 220.2 -8.9 due to lower recoveries this quarter.Other Operating Income 53.0 69.2 -23.4 • Lower operating profit mainly due to lower gain on revaluation of forexNET INCOME 253.6 289.4 -12.4 derivatives instruments and at theOPERATING EXPENSES (137.0) (139.4) -1.7 same time there was a lumpy gain of RM13.3mil on redemption of debt-OPERATING PROFIT 116.6 150.0 -22.3 converted securities last year.(ALLOWANCE)/WRITE BACK FOR (54.2) 16.9 -420.7 • The Group’s net interest incomeLOAN LOSS PROVISION declined by 21.7% mainly due to OPRPROFIT BEFORE TAX 62.4 166.9 -62.6 drop.TAXATION (16.2) (42.6) -62.0NET PROFIT 46.2 124.3 -62.8 6
  • 7. 3 Months Ended 30/6/09 Results Highlight 1Q 4Q 30 Jun 09 31 Mar 09 Variance • Group PBT increased RM56.8mil RMmn RMmn % compared to preceding quarter due to:-OPERATING REVENUE 387.9 398.4 -2.6  Lower loan loss provisionsNet Interest Income 141.8 153.3 -7.5  Income from Islamic BankingIncome From Islamic Banking 58.8 39.3 49.6 increased 49.6% due to ProfitNet Interest Income + Income from Equalization Reserve write backIslamic Banking 200.6 192.6 4.2 as a result of two lumpy Islamic loans provisionsOther Operating Income 53.0 60.1 -11.8  Current quarter overheads wasNET INCOME 253.6 252.7 0.4 lower as last quarter the GroupOPERATING EXPENSES (137.0) (156.0) -12.2 made additional cost for continuous manpowerOPERATING PROFIT 116.6 96.7 20.6 rationalization exercise to improve(ALLOWANCE)/WRITE BACK FOR productivity and efficiency (54.2) (91.1) -40.5LOAN LOSS PROVISION  Net Interest Income decreased byPROFIT BEFORE TAX 62.4 5.6 1,014.3 7.5% due to full impact of OPR drop of 150 bpsTAXATION (16.2) (4.8) 237.5NET PROFIT 46.2 0.8 5,675.0 7
  • 8. 3 Months Ended 30/6/09 Results Highlight Key Financial Ratios Quarterly Ratios % FYE FYE 1Q 2Q 3Q 4Q 1Q 31/03/08 31/03/09 30/06/08 30/09/08 31/12/08 31/03/09 31/06/09Net interest margin 3.0 2.8 3.1* 3.1 2.9 2.6 2.3Cost of Fund 2.7 2.5 2.6* 2.7 2.6 2.3 2.1NFI / Total income 26.5 22.4 24.3 21.3 21.8 22.4 27.8NdCost Income Ratio 49.6* 53.3 50.0* 49.5 54.2 61.7 54.0^ LD Ratio 82.5 79.9 82.6 85.4 87.5 79.9 86.9RWCR 16.2 14.8 15.1 14.9 14.7 14.7 14.9ROAA 1.4 0.8 1.8 1.3 1.1 0.8 0.6ROAE 16.8 8.6 18.8 13.5 11.3 8.6 6.6Gross NPL 7.0 4.5 6.0 5.4 5.2 4.5 4.5Net NPL 3.3 1.8 2.7 2.3 2.2 1.8 1.9Loan Loss Coverage 79.9 99.7 85.5 91.2 92.6 99.7 97.7*Computed based on “normalized” cost/income^Includes PDS 8Nd - High due to PER write back from two lumpy loans provisions
  • 9. Group Strategic Priorities Our primary focus is to further strengthen the Group’s business fundamentals and to put the Group in an advantageous position to take market share when the economy recoversStrategic priorities Key initiatives ● Alliance Financial Group has made available additional RM600 million standby fundsPro-active Capital for any opportunistic investmentManagement ● To protect earnings ● To maintain a strong liquidity position with sustainable loans to deposit (LDR) ratioLiquidityManagement ● Investment securities are biased for liquid assetsRobust Risk ● Proactive review of credit underwriting policies and standardsManagement & ● Pre-emptive provisioning due to deteriorating economic conditionsCredit PortfolioQuality ● Continue to build and strengthen risk management infrastructureOperational ● Manpower management like staff redeployment, hiring freeze, natural attrition etcEfficiency & Cost ● Leverage synergy among with further rationalization among key businesses.Management ● Cost containment exercise 9
  • 10. Group Strategy Vision A leading integrated financial solutions provider with regional reach, delivering the best customer experience and creating long term shareholder value. Mission We will deliver excellent customer experience through strategic alliances and enhanced group synergy, employing best in class technology and human capital. Values Caring CARING Conviction CONVICTION Integrity CREATIVITY Resilience Creativity INTEGRITY RESILIENCE Wholesale &Investment Bank Commercial Consumer Islamic Large SME SME / Mass Corporate /Commercial Mass Market MarketRegional Hubs & Branches & Direct Marketing 3rd Parties HO Hubs Risk & Sales & Service Performance Compliance Service Quality Culture Employees Customers Shareholders Community 10
  • 11. Loans Growth Segmentation Past 3-year Transformation Puts AFG on Right Target MixLoan Portfolio – As at FYE 30/6/08 Loans Breakdown by Businesses FYE FYE FYE % change 3% RM Mil 31/3/08 31/3/09 30/06/09 •YoY •QoQ 10% Consumer 8,828 10,837* 11,869* n.c. 3.2 Commercial /SME 5,253 5,192* 5,232* n.c. 0.8 32% 55% Corporate 1,839 2,567 2,577 46.7 0.4 Loans Size - RM17.3bn Exit Books 625 333 306 -47.1 -7.9 •Total 16,545 18,929 19,984 15.5 2.0 Loan Portfolio – As at FYE 30/6/09 Note: - n.c. – not comparable due to retagging with mass market 2% Loans Size • AFG loans growth (15.5%YoY) outpaced industry 13% –RM20.0bn (8.3% as of June 09) • AFG loans growth +2.0%QoQ in 1QFY10 compared to 0.8%QoQ in 4QFY09 59% 26% • Although Corporate Banking loans grew by 46.7%YoY, it is on the back of much reduced loan base, and the loan portfolio mix is within the target mix (within 15%) 11
  • 12. Monetary Easing Edging Closer to End Cycle Stresses on Net Interest Margin Lessen With Stable OPR 5.45%(n) 5.42% 5.43% 5.32% 5.22% 4.69% 3.02% 3.12%(n) 3.05% 4.18% 2.95% 2.89% 2.65% 2.63% 2.58% 66.3% 2.55% 2.62% 2.65% 2.73% 66.5% 2.56% 2.34% 83.2% 85.3% 3.5% 3.5% 3.5% 3.5% 3.25% 33.7% 33.5% 2.0% 2.0% 16.8% 14.7% Sep07 Mar08 Jun08 Sep08 Dec08 Mar09 Jun09 June 2008 June 2009 Variable Rate Loans (AFG) Fixed Rate Loans (AFG) Earning Assets Yield Net Interest Margin Net Interest Margin Variable Rate Loans (Industry) Fixed Rate Loans (Industry) OPR (Industry) • AFG has higher than industry average variable• NIM fell further to 2.34% on the back of 150bps cut in rate loans OPR rate to 2% since Nov 08 • Industry average variable rate loans rose toNote: (n) –Normalized 67.8% in June 09 compared to 66.5% a year ago 12
  • 13. CASA Ratio at Top Industry QuartileHigher CASA Keeps Cost of Funds Heading South 3.29% 2.94% 2.93% 2.92% Deposit Portfolio – As at FYE June2008 2.88% 2.54% 2.71% 2.67% 2.71% 2.61% (n) 2.62% 3.6% 2.29% 2.18% RM bn 2.08%(n) 36% 25.6 24.3 23.1 Fixed deposit 22.7 CASA 21.7 21.2 21.4 Money Mkt 60% NID Deposit Portfolio – As at FYE June20092.9% 6.4% 35% 36% 35% 35% 35% 32% (25%) (25%) (25%) 33% 35% (25%) (25%) (25%) (24%) (25%) 35% Fixed deposit CASA Sep07 Mar08 Jun08 Jun09 Sep08 Dec08 Mar09 Money Mkt CASA Ratio Cost of Funds (AFG) NID 56% Note: ( ) – CASA Industry Cost of Funds (Industry) Structured Deposit (n) – Normalized 13
  • 14. Gearing Up for Greater Efficiency Costs Have Been Carefully Managed for Greater Efficiency Personnel Cost Establishment Costs Marketing Expenses Admin & General Expenses 122.9% 54.4%11.0% 9.8% 9.2% 50.1% 3.6% 2.6% -3.9% -11.6% -26.7% 58.6% 58.1% 58.5% 24.3% 24.2% 28.3% -54.1% 13.4% 58.1% 58.5% 58.1% 58.5% 58.1% 12.6% 58.1% 58.5% 5.0% 10.5% 3.7% 2.6% Dec08 Mar09 Jun09 Dec08 Mar09 Jun09 Dec08 Mar09 Jun09 Dec08 Mar09 Jun09 % share of total operating expenses % QoQ growth 14
  • 15. Loan Asset Quality Loan Loss Provision at Top Quartile of Industry Loan Loss Coverage – Higher than industry Non Performing Loans remains manageable AFG Industry 100% Gross NPL Net NPL100 98% 1500 91% 93% 87% 88% 1,354 85% 83% 83% 1,252 80% 80 77% 78% 1200 1,158 72% 77% 73% 1,032 1,009 1,016 71% 890 60 900 875 643 40 600 567 522 452 413 411 366 343 20 300 0 0 Sep-07 Dec-07 M ar-08 Jun-08 Sep-08 Dec-08 M ar-09 Jun-09 Sep-07 Dec-07 M ar-08 Jun-08 Sep-08 Dec-08 M ar-09 Jun-09 AFG’s gross NPL ratio – flat AFG’s net NPL ratio lower than industry12.0 5.0 AFG Industry AFG Industry 4.4%10.0 Net NPL ratio lower 4.0 8.8% 3.7% than industry since 3.5%8.0 7.9% 3.2% 3.3% Jun08 7.0% 3.0 3.0% 2.8% 2.7% 5.9% 5.6% 6.0% 2.5% 2.4%6.0 5.4% 2.3% 5.3% 5.2% 2.2% 2.2% 2.2% 4.8% 4.5% 4.3% 4.5% 4.5% 2.0 1.8% 1.9%4.0 4.1% 3.9% 1.02.00.0 0.0 Sep-07 Dec-07 M ar-08 Jun-08 Sep-08 Dec-08 M ar-09 Jun-09 Sep-07 Dec-07 M ar-08 Jun-08 Sep-08 Dec-08 M ar-09 Jun-09 15
  • 16. Capital Adequacy ManagementRWCR – Higher Than Industry Average AFG’s RWCR @ 14.9% vs Industry’s 14.0% ABMB’s RWCR @ 13.2% vs Industry’s 13.6% 14.0% 13.6% Jun-09 14.9% Jun-09 13.2% AFG Industry ABMB Industry 13.4% 12.9% Mar-09 14.7% Mar-09 13.1% 12.7% 12.2% Dec-08 14.7% Dec-08 12.7% 13.0% 12.5% Sep-08 14.9% Sep-08 13.1% 13.6% 13.0% Jun-08 15.1% Jun-08 12.9% 13.3% 12.7% Mar-08 16.2% Mar-08 14.7% 10 11 12 13 14 15 16 17 10 11 12 13 14 15 16 AFG and ABMB Core Capital Core Capital (AFG) Core Capital (ABMB) Jun-09 10.5% 12.7% • AFG’s core capital and RWCR continued to Mar-09 12.6% improve to 10.5% and 14.9% in 1QFY09 10.3% compared to 10.3% and 14.7% in 4QFY09. Dec-08 12.2% • In turn, this has strengthened AFG’s balance 10.2% 12.7% Sep-08 10.4% sheet to take stresses, as reflected in higher Jun-08 10.4% 12.5% equity-to-asset ratio (9.0% in 1QFY10 from 12.5% 8.7% in 4QFY09). Mar-08 11.2% 4 6 8 10 12 14 16
  • 17. Consumer Banking Strategic Priorities• recalibrate performance incentives• differentiated service platform Protect Earnings Scale Up & • reshape revenue streams & rebalance mix • revamp channel mix, baseline annuity income Defend Deliver Better Profitable Distribution Customer Leverage Franchise • revamp channel mix, Navigate to Win baseline annuity income Deliver Better Productivity & Manage Efficiency Portfolio Enhancements Health • exploit outsourcing Cost • de-prioritize LT investments • optimize asset utilization rate Optimisation • cross biz synergies • intensify collection efforts 17
  • 18. Commercial/SME Banking Strategic Priorities NIM Enhancement • drive cross-selling to existing customers • CASA drive; loan re-pricing• new credit program &commission scheme Cost Mass Market Management Navigate to Win • cost reduction – marketing, premises & staff hiring & redeployment • defer non-essential projects Risk • new credit scorecard • greater emphasis on early Management warning & remedial units to contain credit losses 18
  • 19. Other Units Strategic PrioritiesCorporate Banking • Aggressive re-pricing • Cash management • Zero credit loss • Cross-selling CF & DCM • Cost containment • FX – New mindsetAlliance Islamic Bank • Personnel financing – cashvantage & Koperasi • Hire purchase • Syariah complianceInvestment Banking • Stock-broking transformation • Cross-selling between various business units • Restructuring advisory / independent advisory – bread & butterFinancial Market • Increase client distribution • Increase system capabilities thru MUREX 19
  • 20. Long Term Value Creation Information Technology as a Successful Enabler• Culminating to the efforts in providing the best of class technology to serve business needs, the Group was honored with two awards: Technology Business Review Asean – Corporate Award for Excellence & IDC Financial Insights – CEO Award for Leadership Enterprise Transformation Award (Unprecedented category) • During the IDC Financial Insights award presentation, the following citation was made: “”Alliance Banks strategy of applying technology excellence to create sustainable business value has led the bank to deploy an impressive enterprise-wide transformation ranging from enterprise architecture to risk management. This comprehensive initiative saw an effective collaboration between Alliance Bank and its technology partners in successfully positioning the banks IT organization to support its strategic goals …. (FIIA)“” 20
  • 21. Key Take AwayIn Summary - Cautiously Optimistic. We Are Here For The Long Haul. - Business Fundamentals Remain Intact. - Costs Have Been Carefully Managed for Greater Efficiency. - Asset Quality Continues to Improve. - Well Capitalized. Ahead of Industry Average. 21
  • 22. THANK YOUInvestor RelationsAlliance Financial Group7th Floor, Menara Multi-Purpose, Capital Square8 Jalan Munshi Abdullah50100 Kuala Lumpur, Malaysiawww.alliancebank.com.my/investorrelations.html 22

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