first quarter analyst briefing as at 30 june 2010
DESCRIPTION
This is the First Quarter Analyst Briefing as at 30 June 2010 for Alliance Financial Group Berhad (AFGB).TRANSCRIPT
ANALYST BRIEFING- 3 Months Ended 30 June 2010 -
• Key Messages
AGENDA
• 1QFY2011 Financial Performance
• Questions & Answers
2
2
3
4
5
6
7
8
20
40
60
80
100
120
1Q10 2Q10 3Q10 4Q10 1Q11
PAT - lhs EPS - rhs
40
60
80
100
120
140
160
1Q10 2Q10 3Q10 4Q10 1Q11
PBT Operating ProfitRM ‟mil
RM ‟mil
• 1QFY2011 operating profit grew
30.4% YoY from RM116.1mil to
RM151.4mil
• Lower allowance for impairment of
loans, advances & financing and
other losses
• The Group recorded profit-after-
taxation (PAT) of RM110.5mil,
+139.2% YoY
• Earnings per share (EPS) of 7.2 sen
in 1QFY2011, compared to 3.0 sen in
the same period last year
Financial Performance
Strong earnings growth
sen
46.2
78.1
100.0
77.2
116.1122.3
130.3138.8
151.4
110.5
62.4
108.1
131.0
107.4
150.3
3.0
5.1
6.5
5.0
7.2
3
• 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
Financial Performance
Growth momentum in net income continued
(RM ’mil) 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 % YoY
Net 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%
4
2.1%
2.4%
2.7%
3.0%
3.3%
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
Group Corporate
3.4%
3.7%
4.0%
4.3%
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
Commercial
3.8%
4.1%
4.4%
4.7%
5.0%
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
SME
3.0%
3.3%
3.6%
3.9%
4.2%
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
Consumer
KEY DRIVERS
NIM NIM NIM NIM
Financial Performance
NIM improved to 2.8% from 2.3% a year ago
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
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%
2.3%
2.8%
5
-15%
-5%
5%
15%
25%
35%
3,500
4,000
4,500
5,000
5,500
6,000
Jun-07 Mar-08 Dec-08 Sep-09 Jun-10
RM 'mil - lhs
% YoY - rhs
0%
10%
20%
30%
40%
6,000
7,500
9,000
10,500
12,000
13,500
Jun-07 Mar-08 Dec-08 Sep-09 Jun-10
RM 'mil - lhs
% YoY - rhs
Loans breakdown by businesses Consumer
Commercial / SME
Corporate
• AFG loans growth of 7.9% in 1QFY2011
• AFG loans growth was driven by Commercial and SME loans, which grew
by 12.6% and 8.9% respectively
• Exit book loans have decreased to RM246mil in 1QFY2011 from
RM306mil in 1QFY2010
Financial Performance
Loans growth driven by Commercial and SME
(RM ’mil)FYE
31/3/09
FYE
31/3/10
Consumer 10,832 12,800
Commercial 1,407 1,400
SME 4,452 4,235
Corporate 2,567 2,723
Exit Books 333 252
Total 19,591 21,410
FYE 2010 FYE 2011% YoY
1Q 1Q
11,869 12,821 8.0%
1,281 1,443 12.6%
3,951 4,301 8.9%
2,577 2,745 6.5%
306 246 -19.6%
19,984 21,556 7.9%
-60%
-40%
-20%
0%
20%
40%
60%
1,500
1,800
2,100
2,400
2,700
3,000
Jun-07 Mar-08 Dec-08 Sep-09 Jun-10
RM 'mil - lhs
% YoY - rhs
6
70%
75%
80%
85%
90%
95%
1Q09 3Q09 1Q10 3Q10 1Q11
AFG Industry
1.4%
1.8%
2.2%
2.6%
3.0%
1Q09 3Q09 1Q10 3Q10 1Q11
Cost of Funds (%)
Financial Performance
AFG‟s L/D ratio is higher than industry average
High loan to deposit ratio mitigated by high deposit qualityLow cost of funds helps us to remain competitive
79.8%
84.1%
82.4%
88.9%
92.6%
72.2%
73.5%
78.2%77.9%
81.4%
2.6%
2.1% 1.9%
1.7%
2.6%
CASA ratio is at top quartile of the industry
0%
20%
40%
60%
80%
100%
1Q10 2Q10 3Q10 4Q10 1Q11
CASA Fixed Deposits Others
9.4%4.6% 7.3% 6.8% 7.7%
56.0%57.3%
51.8% 51.7% 50.8%
34.6% 38.1%40.9% 41.5% 41.5%
7
Non-Impaired Impaired
• Corporate
• Large Comm
• SME
Retail/
Consumer
• Mortgage
• HP
• Credit card
• P/Loan
• Stock broking
FULL BLOWN FRS 139
Individual Assessment
Using DCF Method
CA = PD x LGD x
LIP x O/S
CA = PD x LGD x LIP x O/S
CA = PD x LGD x
LIP x O/S
Large
loan
>RM1mil
Portfolio -
small loan
<RM1mil
Individual Assessment (IA)
Legend:
TRANSITIONAL PROVISION
Non-Impaired Impaired
Individual Assessment
using DCF Method
CA = 1.5% x
[O/S – IA
Using DCF -
IA using BNM
GP3]
Large
loan
>RM1mil
Portfolio -
small loan
<RM1mil
Individual Assessment
using BNM GP3‟s time-
based method
Collective Assessment (CA)
PD Probability of Default
LGD Loss Given Default
O/S Outstanding Balance
LIP Loss Identification Period
Loans Impairment Methodology
8
Financial Performance
Adoption of FRS 139: Financial Instruments
• Positive impact on opening reserves:
• 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:
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%
Impaired Loans
(RM ‘mil)
Gross Impaired Loans
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
Income Statement (RM ’mil) FY 2010 FY 2009
Interest Income 1,094.4 1,250.6
Interest Expense (477.5) (596.0)
Net Interest Income 616.9 654.6
Islamic Banking Income 245.8 165.1
Non-Interest Income 201.8 235.0
Net Income 1,064.5 1,054.7
Operating Expenses (554.6) (559.4)
Operating Profit 509.9 495.3
Write back/Allowance for NBD 31.9 (115.1)
Allowance for Impairment (132.9) (76.9)
Loan Impairment Allowances (101.0 ) (192.0)
Profit before Taxation & Zakat 408.9 303.3
Taxation & Zakat (107.4) (74.4)
Profit after Taxation & Zakat 301.5 228.9
1QFY11 4QFY10 % QoQ 1QFY10 % YoY
276.7 269.6 2.6% 269.8 2.6%
(107.6) (104.0) 3.5% (132.5) -18.8%
169.1 165.6 2.1% 137.3 23.2%
55.6 71.0 -21.8% 59.4 -6.4%
51.5 41.0 25.6% 60.3 -14.6%
276.2 277.6 -0.5% 257.0 7.5%
(124.8) (138.8) -10.1% (140.9) -11.4%
151.4 138.8 9.0% 116.1 30.4%
(0.5) (19.4) -97.4% (26.0) -98.0%
(0.6) (12.0) -95.0% (27.7) -97.8%
(1.1) (31.4) -96.4% (53.7) -97.9%
150.3 107.4 39.9% 62.4 140.9%
(39.8) (30.2) 31.8% (16.2) 145.7%
110.5 77.2 43.1% 46.2 139.2%
Financial Performance
10
1QFY10 1QFY11 % YoY
2,212.8 2,444.7 10.5%
3,152.5 3,366.7 6.8%
14.9 15.5 +0.6
10.5 11.2 +0.7
Financial Performance
Capital position remains strong
(RM ’mil) FY 2009 FY 2010
Tier I Capital 2,234.1 2,429.2
Total Capital Base 3,167.3 3,339.3
RWCR (%) 14.7 15.4
Core Capital Ratio (%) 10.3 11.1
• AFG‟s core capital and risk-
weighted capital ratio (RWCR)
continued to improve to 11.2%
and 15.5% in 1QFY2011
compared to 10.5% and 14.9%
in 1QFY2010
• Total capital base of RM3.4bil,
increased by 6.8% YoY. Tier I
capital represents 72.6% of
total capital, improved further to
RM2.4bil
• Healthy capital position and is
in line with BASEL requirement
11
FY 2010 FY 2011
1Q 2Q 3Q 4Q 1Q
2.3
2.1
2.6
2.0
2.7
1.9
2.8
1.7
2.8
1.7
27.8
54.0
82.4
14.9
24.0
50.9
90.3
15.4
24.5
53.0
88.9
15.2
24.2
50.0
90.6
15.4
19.4
45.2
92.6
15.5
4.5
97.7
4.1
89.0
3.9
91.0
3.8
94.4
3.8
85.6
0.6
6.6
1.3x
0.8
8.8
1.4x
0.9
10.5
1.4x
0.9
10.5
1.5x
1.4
14.5
1.5x
FY 2009 FY 2010
Profitability• Net Interest Margin
• Cost of Funds
2.8
2.7
2.7
1.9
Business
Performance
• NFI / Total Income
• Cost Income Ratio
• LD Ratio
• RWCR
22.4
53.0
76.6
14.7
24.2
52.1
90.6
15.4
Asset
Quality
• Gross Impaired Loans
• LLC
4.5
99.7
3.8
94.4
Shareholder
Value
• ROAA
• ROAE
• P / BV
0.8
8.6
0.9x
0.9
10.5
1.5x
Financial Performance
Key financial ratios
12
• Key Messages
AGENDA
• 1QFY2011 Financial Performance
• Questions & Answers
13
Moving from transformation journey to sustainable growth
Today
Transformation
Execution
• Focus on Execution
• Sustainable Growth
• Leveraging on Existing Strengths
• Synergising Lines of Business
• Productivity Management
AFG’s Journey
• Restructure and Improve Portfolio
Quality
• Improve Risk and Operational
Controls
• Invest in People and Technology
• Branch Expansion
• Branding
14
Building sustainable growth
Looking Ahead
Priority Growth Areas
Consumer SME Commercial & Corporate
Favourable Economic Environment
• Net beneficiary of rising interest rates
• Streamlining industry focus
Strong Bank Assets
• Deep customer relationships
• Strong risk culture and framework
• Good asset quality and strong balance sheet
• Strong and dependable management team
Segment-driven growth, leveraging shared expertise
Asset Mgt.Islamic TreasuryInv. Bank
Drive Fee
Income
Synergising
Lines of
Business
Build Wealth
Management
Enhance
Cross-Selling
15
Business banking
Business Realignment
ModelNow
Bilateral
Relationship
Managed
Corporate
and
Commercial
Banking
Corporate
Commercial
SME SME
16
Program
Lending
NPLs
CIR
ROE
Dividend
Policy
Key Guidance
Over the medium term (3-5 years) we will ...
… remain better than industry
… move to industry average (45 - 48%) through Y-o-Y
improvements, driven by:
• targeted revenue growth
• productivity focus
… achieve industry average (14 - 16%) through Y-o-Y
improvements, driven by:
• focus on underlying earnings
• prudent capital management
… pay “as much as we can afford, whenever we can”
17
Key Messages
Bank is strong and performing well
Delivering value to our shareholders
We are gaining momentum
• 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 productivity
• We remain well-capitalised
• We pay good dividends
• All our business decisions will be evaluated based on a long-term perspective
• Underlying business momentum is intact and we are well positioned to take advantage of the current
economic cycle18
Investor Relations
Alliance Financial Group7th Floor, Menara Multi-Purpose, Capital Square
8 Jalan Munshi Abdullah
50100 Kuala Lumpur, Malaysia
www.alliancebank.com.my/investorrelations.html
THANK YOU
19
Economic PurposeLoan
(RM ’mil)% YoY
Gross
Impaired
Loans
(RM ’mil)
% Share
Gross
Impaired
Loans Rate
(%)
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%
Loans & Asset Quality
20
5
9
13
17
21
25
Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10
% Y
oY
Ch
an
ge
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
MIER Consumer Confidence IndexInterest Rates MovementReal GDP Growth (%YoY)
KEY DRIVERS
*
* after interest-in-suspense
Loan Drivers
21
Non-Interest Income
Weak market conditions impacted non-interest income
0
10
20
30
40
50
60
70
1Q10 1Q11
18,821 17,273
4,3004,137
10,109
RM ‟000
9,466
3,651
11,091
11,749
4,755
3,690
2,784
1,795
60,337
51,510
8,226
% YoY
-8.2%
-3.8%
-18.6%
-61.4%
+5.9%
-22.4%
+55.1%
Commission & Fees (33.5%)
Wealth Management(8.0%)
Credit Cards(16.0%)
Brokerage Fees(7.1%)
Investment Sales Gain(22.8%)
Other Non-Operating(7.2%)
Forex(5.4%)
Note: ( ) denotes share of each component to total non-interest income 22
70
80
90
100
3.4
3.8
4.2
4.6
1Q10 2Q10 3Q10 4Q10 1Q11
Gross Impaired Loans Ratio - Old GP3 - lhs
Gross Impaired Loans Ratio - FRS 139 - lhs
Loan Loss Coverage - rhs
Asset Quality
Asset quality continues to improve as economy recovers
% %
97.7%
89.0%
91.0%
94.4%
85.6%
4.5%
4.1%
3.9%3.8% 3.8%
3.9%
• The Group adopted FRS 139 w.e.f. 1 April 2010.
As a result of more stringent criteria on
classification of impaired loans, gross impaired
loans ratio increase by 0.1% to 3.9% as at 1 April
2010
• Asset quality continued to improve to 3.8% in
1QFY2011 compared to 3.9% in 4QFY2010
• Loan loss coverage reduced from 94.4% to
85.6% due to write-back of specific allowances
of RM49mil arising from the effect of adopting
FRS 139
Note: For 1QFY2011 onwards, domestic loan impairment allowance is
computed based on the revised BNM guidelines, which
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 for
Loans/Financing issued in January 2010
23
Transitional 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 the
classifications of impaired loans/financing and allowances for loan/ financing impairment effective for annual
Accounting period beginning on or after 1 January 2010. The principles in the revised BNM/GP3 are consistent with
those applicable under FRS 139, except that there is a transitional provision.
Under FRS 139 Transitional provision Existing GP3
Individual impairment
allowances
For individually significant accounts, net present
values of future cashflows are discounted based on
original effective interest rates and compared
against carrying amount
Individual allowances (FRS 139) + Specific
allowances (GP3)
Existing GP3 allowances
Collective impairment
allowances
Estimating losses of a homogenous pool by deriving
Probability of Default and Loss Given Default
All loans, advances and financing
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 basis
Alliance Bank Group had elected for transitional provision and set the threshold for individual impairment assessment for
Corporate Banking, Commercial and SME loans, advances and financing.
For collective assessments, the transitional provision methodology has been agreed, i.e. under the transitional provision, for
loans, advances and financing, there is no change to the existing BNM GP3 basis.
Transitional FRS 139
24
Communities
We are increasing our Corporate Responsibility activities
Corporate Responsibility
Environment
Employee Charity Day
• Employee teams help local charities
• Work day and financial support
provided by the Bank
Donation Matching Programme
• Staff select from approved charity list
• Funding set aside for corporate
matching
Carbon Audit
We will
• … measure our impact
• … set targets and improve over time
• … and report transparently
Sustainable Lending Policies
• Voluntary standards under development
• Encourage good practices/mitigate
negative impacts
• Equator principles a key reference
2010/11 Initiatives
25
Month/Year AWARD AWARDED BY
May
2009
o Best Enterprise Transformation Award 2008
o Best Data & Analytics Project Award 2008
The Asian Banker
October
2009
oMalaysia‟s Top 30 Most Valuable Brands
(MMVB09) 2009
Association of
Accredited
Advertising Agents
Malaysia (4As), The
Edge & Interbrand
December
2009
o2009 National Award for Management
Account (NAfMA 2009)
Malaysia Institute of
Accountants (MIA)
and The Chartered
Institute of
Management
Accountants (CIMA)
Malaysia
December
2009
o Finalist for Best New Card Launch
oFinalist for Most Innovative Card Marketing
Programme
MasterCard Hall of
Fame
February
2010
oSpecial Citation for Product Innovation
(You:nique Card)
Financial Insights
March
2010
oExcellence in Business Model Innovation
Award for 2009
The Asian Banker
April
2010
o Malaysia‟s Top 50 Brands Brand Finance
Key Awards
Recognition of our transformation and investments
26