First Quarter Analyst Briefing as at 30 June 2010

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This is the First Quarter Analyst Briefing as at 30 June 2010 for Alliance Financial Group Berhad (AFGB).

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First Quarter Analyst Briefing as at 30 June 2010

  1. 1. ANALYST BRIEFING- 3 Months Ended 30 June 2010 -
  2. 2. AGENDA• 1QFY2011 Financial Performance• Key Messages• Questions & Answers 2
  3. 3. Financial Performance Strong earnings growth PBT Operating Profit RM ‟mil160 151.4 138.8140 130.3 • 1QFY2011 operating profit grew 122.3120 116.1 30.4% YoY from RM116.1mil to RM151.4mil100 150.3 131.0 80 108.1 107.4 • Lower allowance for impairment of 60 loans, advances & financing and 62.4 other losses 40 1Q10 2Q10 3Q10 4Q10 1Q11 • The Group recorded profit-after- PAT - lhs EPS - rhs taxation (PAT) of RM110.5mil, RM ‟mil sen120 8 7.2 +139.2% YoY 6.5 7100 80 5.1 5.0 6 • Earnings per share (EPS) of 7.2 sen 5 in 1QFY2011, compared to 3.0 sen in 60 100.0 110.5 the same period last year 3.0 4 78.1 77.2 40 3 46.2 20 2 1Q10 2Q10 3Q10 4Q10 1Q11 3
  4. 4. Financial Performance Growth momentum in net income continued(RM ’mil) 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 % YoYNet Interest Income 137.3 152.9 153.8 165.6 169.1 23.2%Islamic Banking Income 59.4 49.6 65.6 71.0 55.6 -6.4%Non-Interest Income 60.3 46.7 57.7 41.0 51.5 -14.6%Net Income 257.0 249.2 277.1 277.6 276.2 7.5% • 23.2% increase in net interest income on the back of 7.9% YoY loans growth • Income of Islamic Banking was affected by slower growth in „Koop‟ loans and Profit Equalisation Reserve (PER). If the PER was normalised, Islamic Banking income will rise by 35.3% • Non-interest income grew slower than expectation driven by lower business volume and stringent risk management 4
  5. 5. Financial Performance NIM improved to 2.8% from 2.3% a year ago 3.2% 3.0% 2.8% 2.8% 2.6% 2.3% 2.4% 2.2% Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 AFG 3.1% 3.1% 3.0% 2.9% 2.6% 2.3% 2.6% 2.7% 2.8% 2.8% KEY DRIVERS Consumer SME Commercial Group Corporate NIM NIM NIM NIM4.2% 5.0% 4.3% 3.3%3.9% 4.7% 3.0% 4.0%3.6% 4.4% 2.7% 3.7%3.3% 4.1% 2.4%3.0% 3.8% 3.4% 2.1% Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 5
  6. 6. Financial Performance Loans growth driven by Commercial and SMELoans breakdown by businesses 13,500 Consumer 40% RM mil - lhs % YoY - rhs FYE FYE FYE 2010 FYE 2011 12,000 30%(RM ’mil) % YoY 31/3/09 31/3/10 10,500 1Q 1Q 20% 9,000Consumer 10,832 12,800 11,869 12,821 8.0% 10% 7,500Commercial 1,407 1,400 1,281 1,443 12.6% 6,000 0% Jun-07 Mar-08 Dec-08 Sep-09 Jun-10SME 4,452 4,235 3,951 4,301 8.9% 6,000 Commercial / SME 35% RM mil - lhs % YoY - rhs 5,500 25%Corporate 2,567 2,723 2,577 2,745 6.5% 5,000 15% 4,500 5%Exit Books 333 252 306 246 -19.6% 4,000 -5%Total 19,591 21,410 19,984 21,556 7.9% 3,500 -15% Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 3,000 Corporate 60% • AFG loans growth of 7.9% in 1QFY2011 RM mil - lhs % YoY - rhs 40% 2,700 • AFG loans growth was driven by Commercial and SME loans, which grew 2,400 20% by 12.6% and 8.9% respectively 2,100 0% -20% • Exit book loans have decreased to RM246mil in 1QFY2011 from 1,800 -40% RM306mil in 1QFY2010 1,500 -60% Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 6
  7. 7. Financial Performance High loan to deposit ratio mitigated by high deposit qualityAFG‟s L/D ratio is higher than industry average Low cost of funds helps us to remain competitive 3.0% AFG Industry Cost of Funds (%)95% 2.6% 92.6% 2.6% 2.6% 2.2%90% 2.1% 1.9% 88.9% 1.8% 1.7%85% 1.4% 84.1% 1Q09 3Q09 1Q10 3Q10 1Q11 82.4% 81.4% CASA ratio is at top quartile of the industry CASA Fixed Deposits Others 100% 4.6%80% 9.4% 7.3% 6.8% 7.7% 79.8% 80% 78.2% 51.7% 50.8% 77.9% 51.8% 57.3% 60% 56.0%75% 40% 73.5% 40.9% 41.5% 41.5% 72.2% 20% 38.1% 34.6%70% 0% 1Q09 3Q09 1Q10 3Q10 1Q11 1Q10 2Q10 3Q10 4Q10 1Q11 7
  8. 8. Loans Impairment Methodology FULL BLOWN FRS 139 TRANSITIONAL PROVISION Non-Impaired Impaired Non-Impaired Impaired Individual Assessment Large Individual Assessment• Corporate Large Using DCF Method loan using DCF Method• Large Comm loan >RM1mil CA = PD x LGD x >RM1mil• SME LIP x O/S CA = PD x LGD x Portfolio - LIP x O/S small loan CA = 1.5% x <RM1mil [O/S – IA Individual Assessment Portfolio - Using DCF - using BNM GP3‟s time- small loanRetail/ IA using BNM based method <RM1milConsumer GP3]• Mortgage• HP CA = PD x LGD x LIP x O/S• Credit card• P/Loan• Stock broking Legend: PD Probability of Default Individual Assessment (IA) LGD Loss Given Default O/S Outstanding Balance Collective Assessment (CA) LIP Loss Identification Period 8
  9. 9. Financial Performance Adoption of FRS 139: Financial Instruments• Positive impact on opening reserves: Total Equity (RM ‘mil) As at 1 April 2010, as previously stated 2,952 Effect of adopting FRS 139 103 As at 1 April 2010, as restated 3,055 Enhancement to reserves 3.5%• No significant impact on current earnings due to 1.5% collective impairment on loans as required under the transitional provisions of the BNM guidelines on Classification and Impairment Provisions for Loans/Financing issued in January 2010• Impaired loans have been restated due to more stringent criteria on impaired loan classification under FRS 139, as follows: Impaired Loans Gross Impaired Loans (RM ‘mil) Ratio As at 1 April 2010, as previously stated 806 3.8% Effect of adopting FRS 139 38 0.1% As at 1 April 2010, as restated 844 3.9% Note: Under the more stringent criteria, certain loans which are less than 3 months in default are now classified as impaired loans 9
  10. 10. Financial PerformanceIncome Statement (RM ’mil) FY 2010 FY 2009 1QFY11 4QFY10 % QoQ 1QFY10 % YoYInterest Income 1,094.4 1,250.6 276.7 269.6 2.6% 269.8 2.6%Interest Expense (477.5) (596.0) (107.6) (104.0) 3.5% (132.5) -18.8%Net Interest Income 616.9 654.6 169.1 165.6 2.1% 137.3 23.2%Islamic Banking Income 245.8 165.1 55.6 71.0 -21.8% 59.4 -6.4%Non-Interest Income 201.8 235.0 51.5 41.0 25.6% 60.3 -14.6%Net Income 1,064.5 1,054.7 276.2 277.6 -0.5% 257.0 7.5%Operating Expenses (554.6) (559.4) (124.8) (138.8) -10.1% (140.9) -11.4%Operating Profit 509.9 495.3 151.4 138.8 9.0% 116.1 30.4%Write back/Allowance for NBD 31.9 (115.1) (0.5) (19.4) -97.4% (26.0) -98.0%Allowance for Impairment (132.9) (76.9) (0.6) (12.0) -95.0% (27.7) -97.8%Loan Impairment Allowances (101.0 ) (192.0) (1.1) (31.4) -96.4% (53.7) -97.9%Profit before Taxation & Zakat 408.9 303.3 150.3 107.4 39.9% 62.4 140.9%Taxation & Zakat (107.4) (74.4) (39.8) (30.2) 31.8% (16.2) 145.7%Profit after Taxation & Zakat 301.5 228.9 110.5 77.2 43.1% 46.2 139.2% 10
  11. 11. Financial Performance Capital position remains strong(RM ’mil) FY 2009 FY 2010 1QFY10 1QFY11 % YoY • AFG‟s core capital and risk- weighted capital ratio (RWCR) continued to improve to 11.2% and 15.5% in 1QFY2011Tier I Capital 2,234.1 2,429.2 2,212.8 2,444.7 10.5% compared to 10.5% and 14.9% in 1QFY2010Total Capital Base 3,167.3 3,339.3 3,152.5 3,366.7 6.8% • Total capital base of RM3.4bil, increased by 6.8% YoY. Tier I capital represents 72.6% of total capital, improved further toRWCR (%) 14.7 15.4 14.9 15.5 +0.6 RM2.4bilCore Capital Ratio (%) 10.3 11.1 10.5 11.2 +0.7 • Healthy capital position and is in line with BASEL requirement 11
  12. 12. Financial Performance Key financial ratios FY 2010 FY 2011 FY 2009 FY 2010 1Q 2Q 3Q 4Q 1Q • Net Interest Margin 2.8 2.7 2.3 2.6 2.7 2.8 2.8Profitability • Cost of Funds 2.7 1.9 2.1 2.0 1.9 1.7 1.7 • NFI / Total Income 22.4 24.2 27.8 24.0 24.5 24.2 19.4 Business • Cost Income Ratio 53.0 52.1 54.0 50.9 53.0 50.0 45.2Performance • LD Ratio 76.6 90.6 82.4 90.3 88.9 90.6 92.6 • RWCR 14.7 15.4 14.9 15.4 15.2 15.4 15.5 Asset • Gross Impaired Loans 4.5 3.8 4.5 4.1 3.9 3.8 3.8 Quality • LLC 99.7 94.4 97.7 89.0 91.0 94.4 85.6 • ROAA 0.8 0.9 0.6 0.8 0.9 0.9 1.4Shareholder • ROAE 8.6 10.5 6.6 8.8 10.5 10.5 14.5 Value • P / BV 0.9x 1.5x 1.3x 1.4x 1.4x 1.5x 1.5x 12
  13. 13. AGENDA• 1QFY2011 Financial Performance• Key Messages• Questions & Answers 13
  14. 14. AFG’s JourneyMoving from transformation journey to sustainable growth Execution • Focus on Execution • Sustainable Growth Transformation • Leveraging on Existing Strengths • Synergising Lines of Business • Productivity Management • Restructure and Improve Portfolio Quality • Improve Risk and Operational Controls • Invest in People and Technology • Branch Expansion • Branding Today 14
  15. 15. Looking Ahead Building sustainable growthFavourable Economic Environment Strong Bank Assets • Deep customer relationships • Net beneficiary of rising interest rates • Strong risk culture and framework • Streamlining industry focus • Good asset quality and strong balance sheet • Strong and dependable management team Priority Growth Areas Synergising Drive Fee Build Wealth Enhance Lines of Income Management Cross-Selling Business Segment-driven growth, leveraging shared expertise Consumer SME Commercial & Corporate Islamic Asset Mgt. Inv. Bank Treasury 15
  16. 16. Business RealignmentBusiness banking Now Model Corporate Corporate Bilateral and Commercial Relationship Banking Managed Commercial Program SME SME Lending 16
  17. 17. Key GuidanceOver the medium term (3-5 years) we will ... NPLs … remain better than industry … move to industry average (45 - 48%) through Y-o-Y improvements, driven by: CIR • targeted revenue growth • productivity focus … achieve industry average (14 - 16%) through Y-o-Y improvements, driven by: ROE • focus on underlying earnings • prudent capital managementDividend Policy … pay “as much as we can afford, whenever we can” 17
  18. 18. Key MessagesBank is strong and performing well• The Group has performed well in 1QFY2011 despite a competitive operating environment• Transformation has taken place and we are delivering sustainable growth• Adoption of FRS 139 had a positive impact on opening reserves and asset quality continued to improve• We will continue to improve productivityDelivering value to our shareholders• We remain well-capitalised• We pay good dividends• All our business decisions will be evaluated based on a long-term perspectiveWe are gaining momentum• Underlying business momentum is intact and we are well positioned to take advantage of the current economic cycle 18
  19. 19. THANK YOUInvestor RelationsAlliance Financial Group7th Floor, Menara Multi-Purpose, Capital Square8 Jalan Munshi Abdullah50100 Kuala Lumpur, Malaysiawww.alliancebank.com.my/investorrelations.html 19
  20. 20. Loans & Asset Quality Gross Gross Loan Impaired ImpairedEconomic Purpose % YoY % Share (RM ’mil) Loans Loans Rate (RM ’mil) (%)Purchase of Securities 325.3 28.3% 17.7 2.2% 5.4%Purchase of Transport Vehicles 834.8 -25.0% 13.6 1.7% 1.6%Purchase of Landed Property 11,230.0 5.1% 310.9 38.0% 2.8%Purchase of Fixed Assets 82.4 41.6% 0.2 0.0% 0.2%Personal Use 2,015.1 45.6% 41.2 5.0% 2.0%Credit Cards 680.0 3.2% 14.7 1.8% 2.2%Construction 248.8 -23.2% 22.1 2.7% 8.9%Working Capital 5,524.1 16.8% 349.1 42.6% 6.3%Others 615.2 -21.3% 49.4 6.0% 8.0%Total 21,555.7 7.9% 818.9 100.0% 3.8% 20
  21. 21. Loan Drivers 25 21 % YoY Change 17 13 9 5 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 AFG 9.8 12.1 14.2 17.7 22.1 22.1 18.4 15.5 9.8 8.0 9.3 7.9 Industry* 9.8 8.9 10.3 12.0 10.7 13.0 11.2 8.4 7.3 8.1 10.3 13.0 * after interest-in-suspense KEY DRIVERSReal GDP Growth (%YoY) Interest Rates Movement MIER Consumer Confidence Index 21
  22. 22. Non-Interest Income Weak market conditions impacted non-interest income70 RM ‟000 % YoY 60,33760 1,795 4,755 Forex 51,510 +55.1% (5.4%)50 2,784 11,091 3,690 -22.4% Other Non-Operating (7.2%)40 11,749 +5.9% Investment Sales Gain 9,466 (22.8%) 3,651 -61.4% Brokerage Fees30 (7.1%) 10,109 8,226 -18.6% Credit Cards20 4,300 (16.0%) 4,137 -3.8% Wealth Management (8.0%)10 18,821 17,273 -8.2% Commission & Fees (33.5%) 0 1Q10 1Q11 Note: ( ) denotes share of each component to total non-interest income 22
  23. 23. Asset Quality Asset quality continues to improve as economy recovers Gross Impaired Loans Ratio - Old GP3 - lhs Gross Impaired Loans Ratio - FRS 139 - lhs % Loan Loss Coverage - rhs % • The Group adopted FRS 139 w.e.f. 1 April 2010.4.6 100 As a result of more stringent criteria on 97.7% classification of impaired loans, gross impaired loans ratio increase by 0.1% to 3.9% as at 1 April 94.4% 2010 91.0% • Asset quality continued to improve to 3.8% in4.2 90 1QFY2011 compared to 3.9% in 4QFY2010 89.0% • Loan loss coverage reduced from 94.4% to 85.6% 85.6% due to write-back of specific allowances 4.5% of RM49mil arising from the effect of adopting 3.9% FRS 1393.8 80 4.1% Note: For 1QFY2011 onwards, domestic loan impairment allowance is 3.9% computed based on the revised BNM guidelines, which 3.8% 3.8% incorporates the FRS 139 accounting principles Collective allowance for domestic loans is computed based on 1.5% requirement under the transitional provisions of the BNM guidelines on Classification and Impairment Provisions for3.4 70 Loans/Financing issued in January 2010 1Q10 2Q10 3Q10 4Q10 1Q11 23
  24. 24. Transitional FRS 139Transitional provision - On 26 January 2010, BNM issued the revised BNM Garis Panduan 3 („BNM/GP3‟) -“Classification and Impairment Provisions for loans/Financing” which sets out the minimum requirements on theclassifications of impaired loans/financing and allowances for loan/ financing impairment effective for annualAccounting period beginning on or after 1 January 2010. The principles in the revised BNM/GP3 are consistent withthose applicable under FRS 139, except that there is a transitional provision. Under FRS 139 Transitional provision Existing GP3Individual impairment For individually significant accounts, net present Individual allowances (FRS 139) + Specific Existing GP3 allowancesallowances values of future cashflows are discounted based on allowances (GP3) original effective interest rates and compared against carrying amountCollective impairment Estimating losses of a homogenous pool by deriving All loans, advances and financingallowances Probability of Default and Loss Given Default 1.5% x {Total outstanding loans/financing – Individual impairment allowances (FRS 139) – Specific allowances (GP3)} Stock broking and Share margin financing No change to existing GP3 basisAlliance Bank Group had elected for transitional provision and set the threshold for individual impairment assessment forCorporate Banking, Commercial and SME loans, advances and financing.For collective assessments, the transitional provision methodology has been agreed, i.e. under the transitional provision, forloans, advances and financing, there is no change to the existing BNM GP3 basis. 24
  25. 25. Corporate Responsibility We are increasing our Corporate Responsibility activities 2010/11 Initiatives Communities EnvironmentEmployee Charity Day Carbon Audit• Employee teams help local charities We will• Work day and financial support • … measure our impact provided by the Bank • … set targets and improve over time • … and report transparentlyDonation Matching Programme Sustainable Lending Policies• Staff select from approved charity list • Voluntary standards under development• Funding set aside for corporate • Encourage good practices/mitigate matching negative impacts • Equator principles a key reference 25
  26. 26. Key Awards Recognition of our transformation and investmentsMonth/Year AWARD AWARDED BYMay o Best Enterprise Transformation Award 2008 The Asian Banker2009 o Best Data & Analytics Project Award 2008October o Malaysia‟s Top 30 Most Valuable Brands Association of2009 (MMVB09) 2009 Accredited Advertising Agents Malaysia (4As), The Edge & InterbrandDecember o 2009 National Award for Management Malaysia Institute of2009 Account (NAfMA 2009) Accountants (MIA) and The Chartered Institute of Management Accountants (CIMA) MalaysiaDecember o Finalist for Best New Card Launch MasterCard Hall of2009 Fame o Finalist for Most Innovative Card Marketing ProgrammeFebruary o Special Citation for Product Innovation Financial Insights2010 (You:nique Card)March o Excellence in Business Model Innovation The Asian Banker2010 Award for 2009April o Malaysia‟s Top 50 Brands Brand Finance2010 26

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