PETALING JAYA: Despite Affin Bank Bhd’s latest insurance deal which will see it monetising some of its assets, the market remains cautious on its stock due to concerns surrounding some of its key ratios, including its gross impaired loan (GIL) ratio.

       Analysts who track Affin, one of the two smallest banking groups in the country, pointed out that apart from its GIL ratio, which is higher than industry average, its high non-interest income (NOII) mix was also a cause of concern.Kenanga Research, in a report, told its clients that it was “still cautious” on the stock as its high NOII mix could come under threat in the near-term from the normalisation of the local trading landscape.

       “Although it is not as strongly exposed to financing risks as its peers due to higher composition of NOII, its GIL ratio of more than 3% hovers above the industry average (2%) and could be a cause of concern especially given the ongoing extensions of movement control orders, ” Kenanga said.

       “In the meantime, (its) return on equity and dividend yield leave much to be desired, ” the research house added.

       Affin Bank and Generali Asia N.V. (Generali) on Tuesday agreed to form a joint venture to develop their life and general insurance businesses in Malaysia.

       Affin said it has agreed to dispose of 21% equity interest in AXA Affin Life Insurance Bhd and 2.95% equity interest in AXA Affin General Insurance Bhd (AAGI) to Generali.

       In addition, Affin has also agreed for AAGI to acquire certain assets and liabilities of MPI Generali Insurans Bhd (MPIG) via a business transfer to create an enlarged company.

       MIDF Research in its note on this deal said it viewed the transactions positively as it allowed the group to monetise its assets and strengthen its core banking business.

       “While the pricing of the disposals has not been disclosed, we estimate that cumulatively, it could be between RM100mil and RM115mil, ” MIDF said.

       “While we expect that the contribution to earnings coming from its insurance business may be reduced due to the lower equity interest, there is a possibility that its insurance associates may contribute more should it be able to grow the business, ” it said.

       It pointed out that the insurance segment contributed RM41.5mil and RM5.95mil to the group’s FY20 and Q1FY21 pre-tax profit respectively, translating to a contribution of 10.7% and 5.5% respectively.

       Kenanga, meanwhile, remained positive on the deal as the agreements, it said, would provide the group access to gross written premiums of more than RM2bil in the general insurance business space.

       This would catapult the group to become the second largest general insurance player, behind Allianz, it added.