KUCHING: Alliance Bank Malaysia Bhd’s (Alliance Bank) loan growth has been projected to taper to two to three per cent year on year (y-o-y) in the fourth quarter of 2020 (4Q20) with the slowdown in small and medium enterprise (SME) and Alliance One Account (AOA) loans.
According to AmInvestment Bank Bhd (AmInvestment Bank), Alliance Bank has outstanding loans of RM43.5 billion as at the end of 3Q20, and a majority of its borrowers (consumer and SMEs) have opted for the six-month moratorium to defer repayments from April 1, 2020.
“Recall that the group’s gross loans grew 5.5 per cent y-o-y in 3Q20,” the research firm said.
“We expect the loan growth to taper to two to three per cent y-o-y in 4Q20 with the slowdown in SME and AOA loans.”
AmInvestment Bank noted that the group’s exposure to vulnerable sectors (restaurants, hotels, travel, tourism and transportation) is two per cent of its total loans or RM871 million.
“On a comforting note, the group does not have any bond exposures to the vulnerable sectors. Also, it is not exposed to loans to airlines.”
The research firm further noted that the group’s exposure to the electricity, utilities and oil and gas sectors is low at 0.1 per cent or RM44 million, while for oil and gas loans, exposure is mainly to borrowers with downstream operations.
As for Alliance Bank’s net interest margin (NIM), AmInvestment Bank observed that it is likely to remain under pressure in the near term due to the recent 25bps cut in the overnight policy rate (OPR) in March 2020 and potentially another 25bps to 50bps cut in May 2020.
“The full financial year 2020 (FY20) NIM is likely to end close to the group’s guidance of 2.37 per cent. Every 25bps cut in the OPR will impact NIM by 5–6bps and profit before tax of RM40 million.
“The group still has room to monetise gains from sale of available-for-sale (AFS) though the fair value through other comprehensive income (FVTOCI) in 4Q20 has trended lower than 3Q19’s RM165 million due the rise in yields in the first three months of 2020.”
Meanwhile, AmInvestment Bank highlighted that credit cost is expected to rise in 4Q20, ending FY20 higher than the guidance of 0.55 per cent to 0.6 per cent.
The research firm further highlighted that as the moratorium is between April 1 and October 1, 2020 (six months), the group’s asset quality and credit cost in 1Q21 and 2Q21 are likely to be stable because there will be no deterioration in staging of loans during this period.
“Also, any restructured and rescheduled (R&R) of loans until December 31, 2020 will not be classified as impaired.
“However, there will be downside risk to credit cost in 4Q21 if the Coronavirus Disease 2019 (Covid-19) pandemic is prolonged.”
On non-interest income (NOII), AmInvestment Bank expected a slowdown in wealth management fees and bancassurance income from moderation of growth in mortgage loans.
“To assist consumers during the Covid-19 outbreak, the group will be granting a fee rebate for each ATM MEPs transaction for one month commencing March 26, 2020.
“This will also impact its NOII.”
Meanwhile, as there is no change to the group’s dividend policy, AmInvestment Bank continued to assume a dividend payout of 48 per cent for FY20 and FY21.
On another note, the research firm observed that foreign shareholdings of the stock have declined 20.9 per cent as at the end of March 2020 from 22.9 per cent in December 2019.
Source : https://www.theborneopost.com/2020/04/27/alliance-banks-loans-growth-to-slowdown-in-4q20/