full year analyst briefing as at 31 march 2015
TRANSCRIPT
ANALYST BRIEFINGFY2015
27 May 2015
in Asia Pacific, Gulf Region & Africa
Executive Summary
Contents
1
Financial Results for FY2015 2
Appendices 3
Key Challenges
3
Executive Summary
Strong SME Franchise, Deposit Base and Healthy Balance Sheet
International Recognition as “Best SME Bank in Asia Pacific, Gulf & Africa (Asian Banker)
Strengths
Strong Deposit growth - 13.7% in FY2015 (Industry 9.0%), and good, stable CASA ratio at 33.6%
Excellent asset quality - Gross Impaired Loans ratio at 1.0% vs. industry of 1.6%
Strong franchise in SME segment with loan growth of 26.8%
Margin pressures – 8 bps y-o-y FY2015 vs. FY2014
Under-leveraged Wealth Management business
Build on SME and Deposit strength
Develop Wealth Management Key Opportunities
Reported Income Statement
Pre-Provision Operating Profit Up 2.1% Y-o-Y Despite Challenging Market Environment
Pre-provision operating profits up 2.1%
Net Interest Income growth of 5.4% and Client-based Non-Interest Income growth of 12.4%* more than compensate for:
Decline of RM56.8m in trading and financial asset revaluations and
Expense growth of 3.0%
Normalising credit costs at 11.5 bps vs. -4.5 bps in FY2014. (Industry average 24 bps)
4
Income StatementFY2015RM mil
FY2014RM mil
%
RM mil %
Net Interest Income 820.6 778.6 42.0 5.4%
Islamic Banking Income 225.1 210.9 14.2 6.7%
Non-Interest Income 337.3 359.4 -22.1 -6.1%
Net Income 1,383.0 1,349.0 34.0 2.5%
Operating Expenses 646.9 628.2 18.7 3.0%
Pre-Provision Operating Profit 736.1 720.8 15.3 2.1%
(Allowance)/ Write back for losses on loans & financing and other losses
(32.9) 28.5 -61.4 >-100%
Pre-tax profit 703.2 749.4 -46.2 -6.2%
Net Profit After Taxation 530.8 563.5 -32.7 -5.8%
Credit Cost FY2015 FY2014
Including recoveries 11.5 bps -4.5 bps
Excluding recoveries 29.4 bps 15.1 bps
*Excluding RM10.0 million of Bancassurance fee
5
FY2014 FY20150
10
20
30
40
50
60
70
80
39.244.6
34.0% 33.6%
Customer deposits CASARM bil
Customer Deposits Trend
FY2014 FY20150
10
20
30
40
50
60
70
80
31.836.6
82.1% 82.8%
Net Loans Loan to deposit ratioRM bil
Net Loans, Advances and Financing Trend
Margin Pressure Tempers Effect of Strong Loan Growth
Net Interest Income
+14.9% net loan growth (Industry 9.2%) led to 5.4% net interest income growth, due to margin compression of 8 bps (in line with Industry)
Going Forward:
i. Focus on Risk Adjusted Returns for loans:
[Net Margin - Direct Cost - Credit Cost]
a) Expand on SME strength
b) Price for risk
Expected outcome is improvement in Asset Risk Adjusted Returns
ii. Ensure faster growth of deposits than assets
FY2014 FY20150
100
200
300
400
500
600
76.2 75.9
133.9 119.7
104.086.8
45.354.9
359.4337.3
27.7%
25.4%
Commission Fee Income Investment Income
Other Income Non-Interest Income Ratio
6
Non-Interest Income
Growth in SME and Business Banking drove Trade & FX, and Transaction Services revenues up 15.8%
Wealth Management flat Trading and financial assets revaluation drag of
RM56.8 million
Going Forward
Build client-based non-interest income, particularly wealth management
Reduce volatility in trading and revaluation Continue to build on business clients flow business,
i.e trade and FX
RM mil
Non-Interest Income Trend
Good Progress on Client-Based Business Offset by Lower Treasury Income
Non-Interest Income FY2015 FY2014 Y-o-Y Growth
RM mil %
Trade & FX 151.2 121.8 29.4 + 24.1%
Transaction Services 106.4 100.6 5.8 +5.8%
Wealth Management 59.7 59.8 (0.1) 0.0%
Total Client-Based 317.3 282.2 35.1 +12.4%
Non Client-Based : Treasury 4.0 60.8 (56.8) (93.4%)
Note: Wealth Management refers to banc assurance; share trading, unit trust and brokerage.Transactional fees refers to commitment fees; processing fee; corporate advisory, service charges and others.
7
Way Forward
Leverage on franchise strengths, improve efficiency
Franchise Growth Focus
Continue to build on SME
Focus Consumer Banking and Wealth Management business on fulfilling the financial needs of the owners, employees and clients of our SME and Business Banking partners
Improve Financial Efficiency
Focus on asset efficiency, i.e Risk Adjusted Returns, to protect margins
Grow deposits faster than loans
Improve share of customer non-interest income revenues
Continue to streamline to contain costs
Focus on Client Excellence
Enhance customer value proposition and customer service standards
Build differentiated and relevant brand positioning in target segments
Executive Summary
Contents
Financial Results for FY2015 2
Appendices 3
1
Summarised Balance Sheet
Balance SheetFY2015RM bil
FY2014RM bil
Change
RM bil %
Total Assets 53.1 48.1 5.0 10.6%
Treasury Assets(1) 11.5 11.9 -0.4 -3.0%
Net Loans 36.6 31.8 4.8 14.9%
Customer Deposits 44.6 39.2 5.4 13.7%
CASA Deposits 15.0 13.3 1.7 12.5%
Shareholders’ Funds 4.5 4.2 0.3 7.9%
Net Loan Growth (y-o-y) 14.9% 14.6% - 0.3%
Customer Deposit Growth (y-o-y)
13.7% 9.0% - 4.7%
+14.9% y-o-y Net Loan growth – driven by strong loan growth in Consumer and Business segments by:
Group Consumer Banking (+13.2% y-o-y)
Group Business Banking (+16.6% y-o-y)
+13.7% y-o-y Customer Deposit growth, is above industry growth rate of 9.0%*.
Growth in Customer Deposits keeping pace with loan expansion, to maintain healthy Loan to Deposit ratio at 82.8%.
+12.5% y-o-y growth in CASA deposits despite intensified competition in industry for CASA deposits.
Net Loan Growth at 14.9% Y-o-Y, Driven by Consumer and SME Segments
Note: * Industry data sourced from BNM Monthly Statistical Bulletin as of March 2015(1) Treasury assets comprise financial assets (HFT, AFS & HTM), derivative financial assets & placements with Financial Institutions
9
Key Financial Ratios
Return on Equity: 12.3% arising from lower NPAT
Dividends per Share: 45% Payout Ratio, with total dividends of 15.4 sen. Dividends:
• 9.0 sen paid in 30 Dec 2014
• 6.4 sen to be paid in 30 Jun 2015
Non-Interest Income ratio: Impacted by lower income from treasury and wealth management due to market volatility.
Net Impaired Loans ratio: Improved further to 0.6% with absolute reduction in impaired loans.
Loan Loss Coverage raised to 102.7%
Strong liquidity, with Loan to Deposit ratio at 82.8%
CASA ratio: Sustained at 33.6%
Capital Adequacy ratios: Strong Core Equity Tier 1 Capital ratio at 11.1%
Financial Ratios FY2015 FY2014 Change
Shareholder Value
Return on Equity 12.3% 13.8% -1.5%
Return on Assets 1.0% 1.2% -0.2%
Earnings per Share 34.8 sen 37.2 sen -6.5%
Dividends per Share 15.4 sen 19.0 sen(1) -3.6 sen
Net Assets per Share RM2.90 RM2.69 7.8%
Efficiency
Net Interest Margin 2.12% 2.20% -0.08%
Non-Interest Income Ratio 25.4% 27.7% -2.3%
Cost to Income Ratio 46.8% 46.6% 0.2%
Asset Quality
Gross Impaired Loans Ratio
1.0% 1.4% -0.4%
Net Impaired Loans Ratio 0.6% 0.7% -0.1%
Loan Loss Coverage Ratio 102.7% 92.7% 10.0%
LiquidityLoan to Deposit Ratio 82.8% 82.1% 0.7%
CASA Ratio 33.6% 34.0% -0.4%
Capital
Common Equity Tier 1 Capital Ratio
11.1% 10.4% 0.7%
Tier 1 Capital Ratio 11.1% 11.4% -0.3%
Total Capital Ratio 13.0% 13.7% -0.7%(1) Excludes special dividend of 10.5 sen paid in respect of FY2014. 10
11
5.7% Y-o-Y Net Interest Income Growth Due To Margin Compression
Interest & Islamic Banking Income
FY2015 vs FY2014+ RM56.2 mil
+ 5.7%
Net Interest Income & Islamic Banking Income
Net Interest Income growth of RM56.2 million or 5.7% y-o-y:
+RM171.1 million increase in interest income primarily from loan growth;
Offset by:
+RM129.1 million rise in interest expense from 13.7% y-o-y expansion in Total Deposits
Deposit rates on the rise:
• Competition for retail deposits ahead of implementation of Basel III Liquidity Coverage Ratio, effective June 2015
• Rates re-priced ahead of the increase in the Overnight Policy Rate (OPR) in July 2014
Net income from Islamic banking:
On the uptrend in FY2015, with the growth in hire purchase lending offsetting the run-off of the high-yielding co-op personal financing.
FY2011 FY2012 FY2013 FY2014 FY20150
200000
400000
600000
800000
1000000
1200000
670,262.0 667,108.0 730,459.0 778,635.0 820,589.0
232,732.0 257,028.0 242,100.0 210,900.0
225,100.0 902,994.0 924,136.0 972,617.0 989,500.0
1,045,700.0
Net Interest Income Islamic Banking IncomeRM mil
12
5.7% Y-o-Y Net Interest Income Growth Due To Margin Compression
Interest & Islamic Banking Income
Net Interest Income & Islamic Banking Income
FY2011 FY2012 FY2013 FY2014 FY20151.50%
2.00%
2.50%
3.00%2.68%
2.45%2.35%
2.20%2.12%
Net Interest Margin Trend
FY2011 FY2012 FY2013 FY2014 FY20151.50%
2.00%
2.50%
3.00%
2.07%
2.28%2.22%
2.31%2.48%
Cost of Funds Trend
Rising Cost of Funds due to: 25 bps increase in OPR to 3.25% in July 2014; rising industry loan to deposit ratio and implementation of Basel III Liquidity Coverage Ratios.
Net Interest Margin: compression due to rising cost of funds, and concentration of loan portfolio in residential and non-residential properties ~ 58.5% of loan portfolio.
FY2011 FY2012 FY2013 FY2014 FY20150
200000
400000
600000
800000
1000000
1200000
670,262.0 667,108.0 730,459.0 778,635.0 820,589.0
232,732.0 257,028.0 242,100.0 210,900.0
225,100.0 902,994.0 924,136.0 972,617.0 989,500.0
1,045,700.0
Net Interest Income Islamic Banking IncomeRM mil
FY2011 FY2012 FY2013 FY2014 FY20150
100
200
300
400
500
600
35.0 55.2 75.7 76.2 75.9
112.1121.6 99.2 133.9 119.7
56.0
117.0 116.6104.0
86.822.6
26.468.9 45.3
54.9
225.7
320.2
360.4 359.4 337.3
20.8%
27.0%28.7% 27.7%
25.4%
Commission Fee Income Investment Income
Other Income Non-Interest Income Ratio
13
Non-Interest Income
Growth in customer flow Non-Interest Income led by Trade and FX Sales offset by weaker Treasury Trading and Mark-to-Market Revaluation of Investment Securities (i.e. Interest rate swaps).
Trade Finance and FX Sales income grew by RM29.4 million or 24.1% due to expansion of Business Banking loans and currency volatility
Wealth management fee income was flat, excluding the one-off upfront banca fees of RM30 million in FY2014, and RM10 million in FY2015
Treasury Income – Gain on sales of securities were RM26.8 million lower; while mark-to-market of derivatives registered a loss of RM18.1 million (FY2014 : RM3.1 million gain)
Mix
16.3%
25.7%
35.5%
22.5%
RM mil
Non-Interest Income Trend
Non-Interest Income Impacted by Lower Treasury Contribution
Note: Wealth Management refers to banc assurance; share trading, unit trust and brokerage.Transactional fees refers to commitment fees; processing fee; corporate advisory, service charges and others.
Non-Interest Income FY2015 FY2014 Y-o-Y Growth
RM mil %
Trade & FX 151.2 121.8 29.4 + 24.1%
Transaction Services 106.4 100.6 5.8 +5.8%
Wealth Management 59.7 59.8 (0.1) 0.0%
Total Client-Based 317.3 282.2 35.1 +12.4%
Non Client-Based : Treasury 4.0 60.8 (56.8) (93.4%)
Operating Expenses
14
Marketing Cost up by RM9.3 million in line with business expansion and brand-building initiatives.
Administration Expenses up by RM7.3 million, mainly due to higher communication expenses.
The Group continues to enhance productivity and efficiency through effective cost management and also investment in branch channels, IT infrastructure and marketing.
Cost to Income Ratio at 46.8% due to Effective Cost Management
OPEX Contribution FY2015RM mil
FY2014RM mil
Change
RM %
Personnel 403.3 399.1 4.2 1.0%
Establishment 144.2 146.3 -2.1 -1.4%
Marketing 33.2 23.9 9.3 39.0%
Administration 66.2 58.9 7.3 12.4%
Total OPEX 646.9 628.2 18.7 3.0%
FY2011 FY2012 FY2013 FY2014 FY20150
200
400
600
800
1000
544.9591.8
639.3 628.2 646.9
48.3% 47.6% 47.9% 46.6% 46.8%
OPEX CIRRM mil
Operating Expenses Trend
Personnel62.4%
Establishment22.3%
Marketing5.1%
Admin10.2% FY2015
Composition of Operating Expenses
Personnel63.5%
Establishment23.3%
Marketing3.8%
Admin9.4% FY2014
15
FY2011 FY2012 FY2013 FY2014 FY20150
5
10
15
20
25
30
35
40
21.924.5
27.8
31.8
36.6
Net Loans, Advances and Financing Trend
Loan Portfolio
Strong Growth Momentum at 14.9% y-o-y, with 20.3% of Portfolio for SME Lending
RM bil
FY2015 vs FY2014+ RM4.8 bil
+ 14.9%
FY2011 FY2012 FY2013* FY2014* FY2015*0%
20%
40%
60%
80%
100%
55.0% 53.9% 55.7% 57.2% 56.5%
21.3% 21.9% 17.9% 18.3% 20.3%
23.7% 24.2% 26.4% 24.5% 23.2%
Consumer SME Wholesale
Loan Composition by Business Segments
Net Loan Growth of 14.9%, higher than industry loan growth of 9.2%(1)
Balanced loan composition with 56.5% Consumer, 20.3% SME and 23.2% for Wholesale Lending
Effective management of interest rate risk: 89.7% of loan book is floating rate (FY2014: 89.7%)
Note: *BNM’s revised SME definition effective from 1 January 2014. FY2013 SME loans have been restated based on BNM’s revised SME definition. (1) Industry data sourced from BNM Monthly Statistical Bulletin as of March 2015
Double-digit Loan Growth for Residential & Commercial Properties
Loan Growth:Residential & Commercial Property
Residential properties: +RM1.8 billion or 13.5% y-o-y growth
Commercial properties: +RM1.7 billion or 35.5% y-o-y growth
Going forward, for loans for residential and non-residential properties to grow in tandem with industry due to:
• Strategic priority to grow deposits faster than loans
• Overall slow down in transactions in property markets
FY2015 vs FY2014+ RM1.8 bil
+ 13.5%
FY2015 vs FY2014+ RM1.7 bil
+ 35.5%
FY2011 FY2012 FY2013 FY2014 FY20150
2
4
6
8
10
12
14
16
18
20
22
8.79.8
11.613.3
15.13.3%
12.4%18.9%
14.9% 13.5%
RM bil
Loan Growth for Residential Property
FY2011 FY2012 FY2013 FY2014 FY20150
2
4
6
8
10
2.83.4
3.7
4.8
6.56.1%
17.9%11.0%
27.8%35.5%
RM bil
Loan Growth for Commercial Property
16
Business Banking Loan Growth Accelerated to 16.6% Driven by SME Lending
Loan Growth: Business Banking & SME
Overall business loans: +RM2.3 billion or 16.6% y-o-y
Corporate & commercial loans: +RM0.7 billion or 8.9% y-o-y
SME Lending: up RM1.6 billion or 26.8% y-o-y driven by significant improvements in turnaround time from streamlining of processes.
FY2015 vs FY2014+ RM2.3 bil
+ 16.6%
FY2015 vs FY2014+ RM1.6 bil
+ 26.8%
Note: * BNM’s revised SME definition effective from 1 January 2014. FY2013 SME loans have been restated based on BNM’s revised SME definition.
FY2014* FY2015*0
2
4
6
8
10
5.9
7.5
RM bil
Loan Growth for SME
RM mil FY2015 FY2014Y-o-Y
Growth
SME 7,481 5,900 26.8%
Corporate & Commercial 8,575 7,874 8.9%
FY2011 FY2012 FY2013 FY2014 FY20150
5
10
15
20
10.111.5
12.513.8
16.1
9.2% 14.2%8.4% 10.1%
16.6%RM bil
Loan Growth for Business Banking
17
FY2011 FY2012 FY2013 FY2014 FY20150
500
1000
1500
704.2561.8
737.9
1117.8
1427.0
RM mil
Share Margin Financing and Hire Purchase Portfolio
+RM309.2 million y-o-y growth with continued expansion of panel of car dealers and distributors
FY2015 vs FY2014+ RM5.1 mil
+ 0.3%
FY2011 FY2012 FY2013 FY2014 FY20150
500
1000
1500
347.5451.3
1,022.0
1,561.6 1,566.7RM mil
Share Margin Financing growth affected by the recent lacklustre performance of the Malaysian equity market, particularly since the last quarter of 2014(1)
Loan Growth: Share Margin & Transport Vehicles
FY2015 vs FY2014+ RM0.3 bil
+ 27.7%
(1) KLCI Index has fluctuated -1.0% on YoY basis (since March 2014)
KLCI 1,545.13 1,596.33 1,671.63 1,849.21 1,830.78
Loan Growth for Transport VehiclesShare Margin Financing Growth
18
19
Well Collateralised Loan Portfolio
Risk management - Well diversified and collateralised loan book to enhance asset efficiency
Robust credit scoring and credit underwriting standards
Residential and non-residential properties accounted for 58.5% of gross loan portfolio:
41.0% of loan portfolio is for residential properties, reduced from 41.4% as at FY14
17.5% for non-residential properties, increased from 14.8% as at FY14
17.9% of gross loans are for working capital
Composition of Loan Portfolio
Purchase of residential property41.0%
Working capital17.9%
Purchase of non-residential property
17.5%Personal use6.2%
Credit card1.8%
Purchase of securities
4.3%
Purchase of transport vehicles
3.9%
Others7.4%
FY2015
Purchase of residential property41.4%
Working capital19.8%
Purchase of non-residential property
14.8%
Personal use6.4%
Credit card1.9%
Purchase of securities
5.0%
Purchase of transport vehicles
3.5%
Others7.2%
FY2014
Loan Composition by Economic Purposes
20
Continued Improvement In Asset Quality – Gross Impaired Loans Ratio Reduced to 1.0%
Asset Quality
Gross Impaired Loans ratio improved to 1.0%
Net reduction in gross impaired loans of RM62.1 million y-o-y, despite a 14.7% y-o-y Gross Loan Growth.
Continuing efforts to refine credit origination processes, credit scoring models, and intensify collection.
FY2011 FY2012 FY2013 FY2014 FY2015
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1.9%
1.4%
1.1%
0.7%0.6%
FY2015 vs FY2014GIL: - RM62.1 mil
- 14.0%
FY2015 vs FY2014GIL Ratio: - 0.4%
(from 1.4% Mar 2014)
FY2011 FY2012 FY2013 FY2014 FY20150
200
400
600
800
1000
1200
775.5
629.2579.2
442.8380.7
3.5%
2.5%2.1%
1.4%1.0%
Gross impaired loans GIL RatioRM mil
Gross Impaired Loans Net Impaired Loans Ratio
21
Continued Improvement in Asset Quality for Mortgages, Hire Purchase and SME segment
Asset Quality: Mortgages, Hire Purchase, SME
Consumer Lending: Gross Impaired Loans ratio for the purchase of residential & non-residential property improved to 1.2%, and to 0.6% for transport vehicles
Gross impaired loans ratio for SME segment further improved to 0.9%.
FY2011 FY2012 FY2013 FY2014 FY20150
100
200
300
400
500
301.9
266.7282.4
254.2 255.939
2.6%
2.0%1.8%
1.4%1.2%
Gross impaired loans GIL Ratio
RM mil
FY2011 FY2012 FY2013 FY2014 FY20150
5
10
15
9.2
5.7 5.6
9.8
8.3
1.3% 1.0%0.8% 0.9%
0.6%
Gross impaired loans GIL Ratio
RM mil
FY2011 FY2012 FY2013 FY2014 FY20150
100
200
204.0
146.2
101.4
79.4 65.5
4.3%
2.7%
1.7%1.4%
0.9%
Gross impaired loans GIL Ratio
RM mil
Purchase of Residential andNon-Residential Properties Purchase of Transport Vehicles SME
Impairment Provisions
22
Normalisation of Credit Costs After 3 Years of Recoveries from Legacy Loans
FY2011 FY2012 FY2013 FY2014 FY2015
78.0%
87.7%82.5%
92.7%
102.7%
RM’000 FY2015 FY2014
Individual assessment 3,475 5,613
Collective assessment 78,193 11,746
Bad debts recovered (61,849) (59,113)
Bad debts written off 17,744 24,511
Allowance for other assets 2,041 3,622
Allowance/ (write-back) for losses on loans, financing and other losses 39,604 (13,621)
Write-back of impairment (CLO) (6,728) (14,927)
Total allowance 32,876 (28,548)
Allowance in FY2015 is mainly due to higher Collective Provisions for loan growth and ratings migration.
Better than industry credit costs
Ch
arg
eW
rite
-bac
k
FY2011 FY2012 FY2013 FY2014 FY2015-35
-15
5
25
45
(4.1)
(21.6)
(0.5)
(14.9)(6.7)
33.3
(2.5)
(24.5)
(13.6)
39.6
Write-back of Impairment Allowance for/ (write -back of) Losses on Loans & Other Losses
29.2
(25.0)(24.1)(28.5)
32.9
Net (Write-back) / Allowance of losses on Loans/ Financing and Impairment
RM mil Loan Loss Coverage
Credit cost (bps) FY2015 FY2014
Including recoveries 11.5 bps -4.5 bps
Excluding recoveries 29.4 bps 15.1 bpsNote: As at December 2014 industry credit cost including recoveries at 16.9 bps
Deposits from customers
83.9%
Deposits of banks and other FIs
2.8%
Shareholders' Funds8.5%
Other Liabilities4.8%
FY2015
Net Loans68.8%
Investment securities
21.1%
Cash, ST funds, Deposits with FI
5.6%
Other Assets4.5%
FY2015
23
Balance Sheet Management
Effective Utilisation of Balance Sheet: Net Loans Constitute 68.8% of Total Assets
Total Assets expanded by RM5.0 billion or 10.6% y-o-y to RM53.1 billion.
FY2015 vs FY2014+ RM5.0 bil
+ 10.6%
FY2011 FY2012 FY2013 FY2014 FY20150
10
20
30
40
50
60
21.9 24.5 27.831.8
36.6
12.311.5
12.711.9
11.5
1.93.7
3.24.4
5.0
36.139.7
43.748.1
53.1
Net Loans Treasury Assets Other Assets TotalRM bil
Note: Investment securities comprise financial assets (HFT, AFS & HTM) & derivative financial assets
Net Loans66.2%
Investment securities
23.3%
Cash, ST funds, Deposits with FI
5.8%
Other Assets4.7%
FY2014
Deposits from customers
81.6%
Deposits of banks and other FIs
6.4%
Shareholders' Funds8.7%
Other Liabilities3.3%
FY2014
Total Assets Trend Composition of Total Assets
Composition of Total Liabilities/ Equity
24
Customer Deposits
Total Customer Deposits of RM44.6 billion as at FY2015, up 13.7% from the same period last year, higher than industry growth rate of +9.0%(1) y-o-y.
CASA deposits expanded by RM1.7 billion or 12.5% y-o-y to RM15.0 billion in FY2015.
Robust y-o-y Deposit Growth of 13.7%, with CASA Deposits Up 12.5% to RM15.0 billion
FY2011 FY2012 FY2013 FY2014 FY20150
5
10
15
20
25
30
35
40
45
50
28.4
32.2
36.039.2
44.6
RM bil
FY2015 vs FY2014+ RM5.4 bil
+ 13.7%
FY2011 FY2012 FY2013 FY2014 FY20150
10
20
30
40
50
8 9.1 10.4 11.5 13.2223351.6 1.7 1.7 1.8
1.7676209999999814.6
15.617.1
18.6214.2
5.86.8
7.3
8.6
34.0% 33.7% 33.6% 34.0% 33.6%
DD SA FD NID,MMD,SD CASA ratioRM bil
28.432.2
36.039.2
44.6
10.8 12.1 13.3 15.0 9.6
(1) Industry data sourced from BNM Monthly Statistical Bulletin as of March 2015.
Customer Deposits Trend CASA Trend
25
Liquidity Management
Healthy Loan to Deposit Ratio Below Industry Average
Healthy Loan to Deposit Ratio, below industry average of 87%
Composition of Deposits - 40.1% of deposits from Individuals; and 31.7% of deposits from Business Enterprises.
33.6% CASA ratio, driven mainly by deposits from Business Enterprises.
FY2011 FY2012 FY2013 FY2014 FY20150%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
78.8% 77.7% 78.4%82.1% 82.8%
Individuals40.1%
Business enterprises31.7%
Govt. & statutory bodies6.7%
Domestic financial institutions
9.1%
Domestic non-bank financial institutions
10.0%
Foreign entity1.3%
Others1.1%
Demand deposits; 29.6% Saving deposits;
4.0%
Fixed/ investment deposits; 47.2%
Money market deposits; 9.3%
Negotiable in-struments of
deposits; 9.0%
Structured deposits;
0.9%
Deposit Composition by Customer Types
Deposit Composition by Product Types
Loan to Deposit Ratio Trend
Legal EntityCET 1 Capital
RatioTier 1 Capital
RatioTotal Capital
Ratio
Alliance Financial Group 11.1% 11.1% 13.0%
Alliance Bank 11.1% 11.1% 11.5%
Alliance Islamic Bank 10.9% 10.9% 11.6%
Alliance Investment Bank
93.5% 93.5% 93.5%
Basel III Minimum regulatory capital adequacy ratio (1)
4.5% 6.0% 8.0%
Effective Capital Management
26
Strong profit generation capacity to enable balance sheet expansion.
Continuous enhancement of capital usage by focusing on:
Less capital intensive lending activities – Consumer, Mortgage and SME lending
Non-Interest Income and fee based activities – Wealth Management and Transaction Banking
Improving asset quality
Capital Adequacy Ratios are well above Basel III requirements.
Basel III: Capital Adequacy Ratios by Legal Entities
(1) Based on the Basel III minimum capital ratios for calendar year 2015
RM Mil FY11 FY12 FY13 FY14 FY15
Double Leverage Ratio
97.2% 98.7% 98.5% 99.0% 96.0%
AFG: Double Leverage Ratio
FY2011 FY2012 FY2013 FY2014# FY2015^0
200
400
600
800
409.2503.1
538.1 563.5 530.8
12.8% 14.0% 13.8% 13.8%12.3%
NPAT Return on EquityRM mil
FY2011 FY2012 FY2013 FY2014# FY2015^0
10
20
30
40
50
60
26.733.0 35.3 37.2 34.8
7.0
13.316.6
19.015.4
Earning Per Share Dividend Per Share
FY2015: Paid 45% of NPAT as Dividends
27
Enhanced Shareholder Value
sen
Net Profit After Tax and Return on Equity
Earnings Per Share and Dividend Per Share
FY2011 FY2012 FY2013 FY2014# FY2015^0
100
200
300
400
500
50.5 85.7 100.3 114.3 136.9 56.6
117.5 152.2 174.7 97.5
107.1
203.2252.5
289.0234.4
26.0%
42.0%47.0% 51.0% 45.0%
1st Interim 2nd Interim Dividend Payout RatioRM mil
Dividends Paid (Amount) and Payout Ratios
Note: ^ Includes proposed second interim dividend # Excluding special dividend of 10.5 sen or RM159.2 mil paid on 26 June 2014 * Computation based on share price of RM4.79 as at 31 March 2015
FY2011 FY2012 FY2013 FY2014 FY20150
200
400
600
800
1,000
553.1674.6
714.0 749.4 703.2
RM mil
Profit Before Tax
28
FY2011 FY2012 FY2013 FY2014 FY20150
2
4
6
8
10
4.907
6.0226.811 6.827
7.415
RM bil
Enhanced Shareholder Value
FY2011 FY2012 FY2013 FY2014 FY20150
1
2
3
4
5
6
3.17
3.894.40 4.41
4.79
RM
Steady Rise in Market Capitalisation
Market capitalisation and share price performance holding well with CAGR at 10.9% since FY2011.
Foreign shareholding of 31% at end-March 2015
FY11 FY12 FY13 FY14FY15
1.5 1.6 1.7 1.6 1.6
Jun’14 Sep’14Dec’14
Mar’15
32.5% 32.7% 32.0% 31.0%
Price-to-Book Multiple (times)
Foreign Shareholding
Market Capitalisation Share Price Performance
2014-2015: We’ve won 17 Awards, gaining international recognition for our SME Banking Business and BizSmart initiatives
Awards & Recognition
Global Financial Market ReviewBest SME Bank Malaysia 2014
“Sahabat Negara SME Award” 2010, 2011, 2012, 2013 & 2014
Best Use of Integrated Marketing Campaign (Bronze)Alliance BizSmart Academy
Architecture Excellence Awards 2014Growing Business in New Territory or New Service Offering
Excellence in Brand Strategy Alliance BizSmart Academy
Online Banking Initiative Of The Year – Malaysia
2014
2013
Service Excellence in SME Banking
in Asia Pacific, Gulf region & Africa
Malaysia’s 100 Leading Graduate Employers 2012, 2013 & 2014
Malaysia’s Most Improved Brokerage Over The Last 12 Month (3rd Rank)Alliance Investment Bank Berhad
2015
in Asia Pacific, Gulf region & Africa
in Asia Pacific, Gulf region & Africa
29
Executive Summary
Contents
1
Financial Results for FY20152
Appendices3
Economic Environment Has Become More Challenging
• GDP expected to moderate this year to 5.0%, from 6.0% in 2014 due to:
Decline in commodity prices; lower exports and government spending
Slowdown in consumption spending due to high household debt-to-GDP ratio of 87.9% and rising cost of living post GST implementation.
• Asset quality under pressure from:
Challenging external environment – volatility in exchange rate and commodity prices
Tighter cash flow from rising inflation
• Continued compression of industry’s interest margin with intense price competition for both loans and deposits
• OPR to remain steady at 3.25%, but pressure on deposit rates with implementation of Liquidity Coverage Ratios(1): 60% effective 1 June 2015 and to increase to 70% in January 2016
• More banks targeting SME banking
Economic Environment
Slower GDP Growth
Asset Quality
Intensifying Competition
(1) Liquidity Coverage Ratio (%) is based on Basel III rules which seeks to ensure banks hold sufficient high quality liquid asset (HQLA) to withstand an acute liquidity stress scenario for 30-days at both entity and consolidated level 31
FY2015:Underlying NPAT
FY2015 Net Profit After Tax 5.2% Lower Y-o-Y Excluding Exceptional Items
Income StatementFY2015RM mil
FY2014RM mil
%
RM mil %
Net Interest Income 820.6 778.6 42.0 5.4%
Islamic Banking Income 225.1 210.9 14.2 6.7%
Non-Interest Income 337.3 359.4 -22.1 -6.1%
Net Income 1,383.0 1,349.0 34.0 2.5%
Operating Expenses 646.9 628.2 18.7 3.0%
Pre-Provision Operating Profit 736.1 720.8 15.3 2.1%
(Allowance)/ Write back for losses on loans & financing and other losses(1)
(32.9) 28.5 -61.4 >-100%
Pre-tax profit 703.2 749.4 -46.2 -6.2%
Net Profit After Taxation 530.8 563.5 -32.7 -5.8%
RM mil FY2015 FY2014
Net Interest Income -18.4 mil(1) -
Non-Interest Income +31.6 mil (2) +30.0 mil (4)
Operating Expenses -10.6 mil (3) -22.3 mil (5)
NPAT Impact +1.9 mil + 5.7 mil
Underlying NPAT 528.9 mil 557.8 mil
Exceptional Items:
Notes:
1. Accounting adjustment on income recognition for balance transfer for credit cards from upfront to amortisation
2. Gain on disposal of land of RM21.6 million and RM10.0 million of Bancassurance Fee
3. Implementation of Mutual Separation Scheme (MSS) to right-size the Group
4. Sign on fee for Bancassurance Agreement with Manulife Insurance Berhad
5. Implementation of Voluntary Separation Scheme (VSS) to right-size the Group
RM mil FY2015 FY2014
Non-Interest Income Ratio 22.3% 25.0%
Cost-to- Income Ratio 46.5% 45.9%
Ratios Excluding Exceptional Items:
32
Quarterly:Income Statement
4th Quarter FY2015 vs 4th Quarter FY2014
Net Interest Income was RM14.9 million lower: 4th Quarter FY2015 included a one-off accounting adjustment of RM18.4 million for recognition of income on balance transfer for credit cards. Income amortised, instead of up-front recognition.
Non-Interest Income: Treasury Investment Income was RM27.5 million lower in 4th Quarter FY2015.
Allowances for Loan Losses: Normalised credit cost in 4th Quarter FY2015, while 4th Quarter FY2014 had net write back of RM31.6 million due to recoveries from CLO (RM14.0 million) and other legacy loans.
Income Statement4QFY15RM mil
4QFY14RM mil
%
RM mil
%
Net Interest Income 186.1 201.0 -14.9 -7.4%
Islamic Banking Income 58.2 52.6 5.6 10.7%
Non-Interest Income 61.7 87.8 -26.1 -29.7%
Net Income 306.0 341.4 -35.4 -10.4%
Operating Expenses 165.5 165.3 0.2 0.1%
Pre-Provision Operating Profit 140.6 176.1 -35.5 -20.2%
Allowance for losses on loans & financing and other losses(1) (16.0) 31.6 -47.6 ->100.0%
Pre-tax profit 124.6 207.7 -83.1 -40.0%
Net Profit After Taxation 93.3 158.0 -64.7 -41.0%
(1) No write-back of impairment for investment securities and CLO recoveries (4QFY14: RM14.0 million)33
Quarterly Income Statement
4th Quarter FY2015 vs 3rd Quarter FY2015
The drop in Net Interest Income mainly due to:
RM18.4 million adjustment for income recognition on balance transfer for credit cards, from upfront to amortisation.
NIM compression due to higher cost of funds and growth in deposits. LDR reduced from 86.0% to 82.8%
Decline of RM16.3 million in Non-Interest Income mainly due to:
Lower client-based fees and commissions (brokerage, guarantee) of RM3.5 million
Lower FX gain of RM9.9 million
5.8% increase in Operating Expenses mainly due to:
Marketing Cost up by RM3.0 million in line with business expansion and brand-building initiatives.
Personnel Expenses up by RM6.5 million, mainly due to salaries, allowances and bonuses
Normalisation of credit costs, with lower recoveries in 4th quarter
34
Income Statement4QFY15RM mil
3QFY15RM mil
%
RM mil %
Net Interest Income 186.1 213.5 -27.4 -12.8%
Islamic Banking Income 58.2 58.3 -0.1 -0.2%
Non-Interest Income 61.7 78.0 -16.3 -20.9%
Net Income 306.0 349.8 -43.8 -12.5%
Operating Expenses 165.5 156.4 9.1 5.8%
Pre-Provision Operating Profit 140.6 193.4 -52.8 -27.3%
(Allowance)/ Write back for losses on loans & financing and other losses
(16.0) (25.2) 9.2 36.5%
Pre-tax profit 124.6 168.2 -43.6 -25.9%
Net Profit After Taxation 93.3 126.4 -33.1 -26.2%
Credit Cost 4QFY15 3QFY15
Including recoveries 8.0 bps 5.1 bps
Excluding recoveries 10.7 bps 8.9 bps
Islamic Banking: Y-o-Y Net Financing Growth of 30.8% and Deposit Growth of 27.4%
35FY2011 FY2012 FY2013 FY2014 FY20150
2
4
6
8
10
12
5.5 5.25.9 6.3
8.0
31.5% 36.8% 33.1% 32.9% 31.7%
Customer Deposits CASA RatioRM bil
FY2015:Islamic Banking
FY2011 FY2012 FY2013 FY2014 FY201540
90
140
190
240
290
340
232.7257.0 242.1
211.0 225.0
20.6% 20.5% 18.2% 15.6% 16.3%
Islamic Banking Income % of Group's Net IncomeRM mil
FY2011 FY2012 FY2013 FY2014 FY20150
10
20
30
40
50
60
70
80
56.1
72.6
55.7 54.760.4
RM mil
FY2011 FY2012 FY2013 FY2014 FY20150
2
4
6
8
4.04.4 4.6
5.0
6.6
RM bil
RM bil
Mainly contributed by increase in mortgage financing and hire purchase
Customer Deposits (AIS)Net Profit After Tax & Zakat (AIS)
Net Financing & Advances (AIS)Islamic Banking Income
Non-Interest Income
Fee Income Trajectory
Growth in Recurring Client-Based and Transactional Fee IncomeOffset by Weakness in Treasury Activities
36
Non-Interest Income (NII) FY15 (RM mil) FY14 (RM mil) Variance (RM mil) %
Gain from sale/redemption of FI 17.6 44.4 -26.8 -60.4%MTM revaluation of FI / derivatives -18.1 3.1 -21.2 -683.9%Realised gain/loss from derivatives 2.3 7.9 -5.6 -70.9%Dividend Income 2.2 5.4 -3.2 -59.3%Total Treasury Investment & Trading 4.0 60.8 -56.8 -93.4%Trade Finance 48.2 44.5 3.7 8.3%Guarantees 13.7 12.1 1.6 13.2%FX (Sales and Trading) 89.3 65.2 24.1 37.0%Client-Based: Trade & FX 151.2 121.8 +29.4 +24.1%Insurance / Banca 24.8 23.0 1.8 7.8%Share Trading Fee 4.3 5.3 -1.0 -18.9%Unit Trust 10.5 15.3 -4.8 -31.4%Brokerage 20.1 16.2 3.9 24.1%Client-Based: Wealth 59.7 59.8 -0.1 0.0%Commitment Fees 15.2 15.4 -0.2 -1.3%Processing Fees 17.0 14.3 2.7 18.9%Corporate Advisory 0.8 1.3 -0.5 -38.5%Service Charges & Fees 33.7 31.9 1.8 5.6%Recurring Transactional Banking 10.8 12.0 -1.2 -10.0%Other Income 28.9 25.7 3.2 12.5%Client-Based: Fee & Commission 106.4 100.6 +5.8 +5.8%Total Client-Based Non-Interest Income 317.3 282.2 +35.1 +12.4%
Total Non-interest income (excluding Islamic Banking Income) 321.3 343.0 -21.7 -6.3%
Reclassification into Islamic Banking Income 15.6 13.6 +2.0 +14.7%
Total Non-interest income (including Islamic Banking Income) 305.7 329.4 -23.7 -7.2%
One off items – Bancassurance fees / Gain on sale of land 31.6 30.0 +1.6 +5.3%AFG TOTAL 337.3 359.4 -22.1 -6.1%
Requirements
Banks to maintain, in aggregate, Collective Assessment Allowance (“CA”) and Regulatory Reserve ratio of 1.2%.
The CA + Regulatory Reserve is stated as a percentage of gross loans (excluding guaranteed loans from the Government of Malaysia), net of individual allowance (“IA”).
CA includes both provision for impaired and non-impaired loans, amount as per disclosed in our financial statements.
The Bank shall comply with this requirement by 31 December 2015.
Guideline on Classification and Impairment Provision for Loans/Financing
Treatments
In the event the Bank is required to top up the provision to 1.2% (via the creation of Regulatory Reserve), the top up portion is created by way of transferring the provision from retained profits i.e. merely movement within the statement of equity without additional charge to profit & loss accounts.
It would be a transfer from Retained Earnings to Regulatory Reserve (within Shareholders Funds).
Effectively the Regulatory Reserve will be similar to the Statutory Reserve – cannot be used to declare dividends. But no impact on the Net Tangible Assets (“NTA”).
As per Para 16.1, CA and Regulatory Reserve, attributable to impaired loans shall be excluded from Tier-2 Capital’s computation.
AFG Mar 2015 Dec 2014
CA % 1.0% 0.92%
Impacts
As at end-March 2015, AFG’s CA ratio was at 1.0%. To top up to 1.2%, this translates to transfer of RM107.7 million from retained earnings to Regulatory Reserve.
Estimated impact to CET1 ratio is a drop of 0.31% to 10.8%. Total Capital Ratio maintained at 13.0%.
Regulatory Reserve
37
Alliance Financial Group7th Floor, Menara Multi-PurposeCapital SquareNo. 8, Jalan Munshi Abdullah50100 Kuala Lumpur, MalaysiaTel: (6)03-2604 3333www.alliancefg.com/quarterlyresults
THANK YOU
Maple Chan Yun FengCorporate Strategy & Investor RelationsContact: (6)03-2604 3385Email: [email protected]
Disclaimer: This presentation has been prepared by Alliance Financial Group (the “Company”) for information purposes only and does not purport to contain all the information that may be required to evaluate the Company or its financial position. No representation or warranty, expressed or implied, is given by or on behalf of the Company as to the accuracy or completeness of the information or opinions contained in this presentation.
This presentation does not constitute or form part of an offer, solicitation or invitation of any offer, to buy or subscribe for any securities, nor should it or any part of it form the basis of, or be relied in any connection with, any contract, investment decision or commitment whatsoever.
The Company does not accept any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith.
For further information, please contact: Amarjeet KaurGroup Corporate Strategy & DevelopmentContact: (6)03-2604 3386Email: [email protected]