PETALING JAYA: Alliance Bank Malaysia Bhd (ABMB) is expected to see a pick-up in loan growth for its third quarter (Q3) ended Dec 31, 2021, thanks to the reopening of the economy and the anticipated recovery of small and medium enterprises (SMEs).
This could help improve the lender’s asset yield, as well as interest margin amid lower funding cost.
In addition, with a sound capital position, the smallest banking group also has the capacity to declare a higher dividend payout ahead, says AmInvestment Bank Research (AmInvest).
The brokerage maintained its “buy” call on Alliance Bank, with an unchanged fair value of RM3.80 based on estimated return-on-equity ratio of 9.7% for the financial year ending March 31, 2023 (FY23) and price-to-book-value (P/BV) of 0.9 times.
In its report yesterday, AmInvest said it continued to like Alliance Bank’s stock for its attractive valuation, trading at 0.8 times FY23 P/BV; improving outlook on the group’s asset quality; and normalising dividend payouts with improved earnings.
“We see room for stronger improvement in interest margin ahead coming from higher asset yield and lower funding cost due to a higher mix of SavePlus deposits,” it said.
Coming from a subdued loan growth of 0.2% year-on-year (y-o-y) in Q2 of FY22, AmInvest anticipated underwriting for new loans to pick up pace in Q3 of FY22 after the reopening of economy which would improve the group’s asset yield.
“We see a likelihood of SME loans gaining traction in line with a stronger growth in working capital financing for businesses seen in the banking system in October and November 2021,” it explained.
“For consumer loans, the group will focus more on conventional mortgages which are less risky compared to Alliance One Account loans,” it added.
In its net interest margin (NIM) estimates, the brokerage noted it had factored in an improvement in interest margin of 10 basis points (bps) in FY22 and four bps in FY23 for Alliance Bank.
For FY23, the forecast had taken into account a 25bps hike in the overnight policy rate (OPR) from 1.75% to 2% in the second half of 2022. AmInvest estimated that every 25bps hike would expand the group’s NIM by three to four bps.
Meanwhile, it said: “With the healthy capital position, we see room for a potentially higher dividend payout between 45% and 50% from the present 40% in the first half of FY22.” Prior to Covid-19, Alliance Bank payout ratios stood at 48% for FY18 and FY19.
In general, there is growing optimism for the banking industry, as loan growth has been accelerating since the government lifted movement restrictions.
TA Research, for instance, noted the healthy pickup in momentum since last September, driven by an acceleration in the business segment.
“Additionally, we anticipate that consumer demand will remain robust on the back of more optimistic trends,” the brokerage said.
“Moving into 2022, we expect a more robust loan growth of 5.8%, from the 5.2% projected earlier. We believe the expansion will be fuelled by a 5.9% and 5.8% y-o-y growth in corporate and consumer loans, respectively,” it added.
TA Research, however, was less optimistic on NIM growth. It said while an anticipated 25 bps increase in OPR is positive for NIM, banks were expected to restart competition for loans and deposits on brightened macroeconomic prospects, hence weighing on NIM.
Despite potential earnings risks, TA Research maintained its “overweight” call on the banking sector, citing the resilience of the banking system, supported by healthy liquidity and capital buffers to absorb potential losses and support lending activities.
It also noted the proactive monitoring by the central bank; continued repayment and debt rehabilitation assistance for targeted borrowers; and a conducive interest rate environment as positive factors for the sector.
In addition, TA Research said its positive outlook was also supported by the sector’s attractive P/BV valuations, which are currently less than 1.0 time.
“We maintain that valuations are inexpensive against a five-year and 10-year P/BV valuation cycle,” it said.