Half Year Analyst Briefing as at 30 September 2010
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Transcript of Half Year Analyst Briefing as at 30 September 2010
ALLIANCE FINANCIAL GROUP
ANALYST BRIEFING- 1HFY11 Results ended 30 September 2010 -
• Key Messages
AGENDA
• 1HFY2011 Financial Performance
• Questions & Answers
2
80
100
120
140
160
180
2Q10 3Q10 4Q10 1Q11 2Q11
PBT Operating ProfitRM ’mil
• 2QFY2011 - PBT of RM137.6mil (+27.3% YoY) due to good run rate from most business divisions and
lower impairment charge
• 1HFY2011 - PBT of RM287.9mil (+68.8% YoY) was due to higher net income, lower overheads and
lower impairment charge
• 1HFY2011- overheads were contained at RM261.2mil, a saving of 2.9%
• 1HFY2011 - an impairment loss of RM0.7mil on a CLO (impairment loss of RM122.8mil in 1HFY2010)
Financial Performance
Maintaining earnings growth momentum
123.4
130.3
138.8
151.4
108.1
131.0
107.4
150.3
3
137.6
160.5
0
100
200
300
400
1H09 2H09 1H10 2H10 1H11
PBT Operating Profit
RM ’mil
230.0
73.3
170.5
238.4287.9
273.6
219.7239.5
269.1
312.0
4
Financial Performance
Contribution by line of business
Net Income Total Loans NIM
1HFY10 1HFY11 1HFY10 1HFY11 1HFY10 1HFY11
Consumer 41.4% 43.9% 59.2% 59.1% 3.0% 3.4%
SME 20.9% 21.7% 19.6% 20.2% 3.8% 4.5%
Corporate & Commercial 16.1% 16.2% 19.8% 19.7%2.6% (a)
3.7% (b)
2.9% (a)
4.1% (b)
Group Special Assets Management
(GSAM)2.7% 1.9% 1.4% 1.0% 6.6% 6.7%
Investment Banking 3.0% 2.1% - - 1.7% 0.7%
Group Treasury 13.3% 12.9% - - 0.8% 0.5%
Alliance Investment Management
(AIM)0.7% 0.6% - - - -
Consolidation Adjustment 1.9% 0.7% - - - -
Alliance Financial Group 100.0% 100.0% 100.0% 100.0% 2.4% 2.7%
Note: (a) refers to Corporate Banking
(b) refers to Commercial Banking
Quarterly
2QFY10 2QFY11 % YoY
145.0 174.2 20.1%
49.6 58.7 18.3%
55.6 64.0 15.1%
250.2 296.9 18.7%
• 2QFY2011 - benefited from 6.2% YoY loans growth, 75bps increase in OPR since March 2010 and
stronger non-interest income
• 1HFY2011 - driven by +6.2% loans growth and OPR hike but overall net income was dragged down
by weaker than expected non-interest income especially on brokerage fees and credit cards
business
Financial Performance
Higher income
Half Yearly
(RM ’mil) 1HFY10 1HFY11 % YoY
Net Interest Income 282.3 343.3 21.6%
Islamic Banking Income 109.0 114.3 4.9%
Non-Interest Income 117.4 115.6 -1.5%
Net Income 508.7 573.2 12.7%
5
3.0%
3.4%
3.8%
4.2%
Jun-09 Oct-09 Feb-10 Jun-10
Group Corporate
4.1%
4.5%
4.9%
5.3%
Jun-09 Oct-09 Feb-10 Jun-10
Commercial
4.4%
4.6%
4.8%
5.0%
Jun-09 Oct-09 Feb-10 Jun-10
SME
5.2%
5.5%
5.8%
6.1%
Jun-09 Oct-09 Feb-10 Jun-10
Consumer
KEY DRIVERS
GIM GIM GIM GIM
Financial Performance
GIM remains stable
6
4.0%
4.5%
5.0%
5.5%
6.0%
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10
AFG 5.6% 5.8% 5.6% 5.4% 4.7% 4.4% 4.3% 4.4% 4.4% 4.7% 4.5%
-15%
-5%
5%
15%
3,600
3,900
4,200
4,500
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
RM 'mil - lhs
% QoQ - rhs
Loans breakdown by businesses Consumer
Corporate & Commercial
SME
• AFG loans growth of 6.2% in 2QFY2011
• AFG loans growth was driven by SME and supported by Consumer
Banking loans, which grew by 9.6% and 6.0% respectively
• Exit book loans have decreased to RM226mil in 2QFY2011 from
RM288mil in 2QFY2010
Financial Performance
Loans growth driven by SME
(RM ’mil)FYE
31/3/10
Consumer 12,800
SME 4,235
Corporate & Commercial 4,123
Exit Books 252
Total 21,410
FYE 2010 FYE 2011% YoY
2Q 2Q
12,172 12,897 6.0%
4,025 4,413 9.6%
4,068 4,301 5.7%
288 226 -21.6%
20,553 21,837 6.2%
7
-2%
1%
4%
7%
10%
10,500
11,500
12,500
13,500
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
RM 'mil - lhs
% QoQ - rhs
-4%
-1%
2%
5%
8%
3,600
3,800
4,000
4,200
4,400
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
RM 'mil - lhs
% QoQ - rhs
Financial Performance
Cost management - an area of priority
8
40%
44%
48%
52%
56%
0
40
80
120
160
2Q10 3Q10 4Q10 1Q11 2Q11
Personnel Costs Establishment Costs
Marketing Expenses Admin & General Expenses
CIR (%) - rhs
RM ’mil
126.8
146.8
138.8
124.8
136.4
% YoY 2QFY10 1QFY11 2QFY11
Personnel 5.3% 0.0% 9.6%
% YoY 2QFY10 1QFY11 2QFY11
Establishment -8.7% -7.9% -0.5%
% YoY 2QFY10 1QFY11 2QFY11
Personnel 22.3% -33.2% 46.9%
% YoY 2QFY10 1QFY11 2QFY11
Establishment 1.8% -64.4% 6.7%
0%
20%
40%
60%
80%
2Q10 3Q10 4Q10 1Q11 2Q11
Personnel Cost
0%
10%
20%
30%
40%
2Q10 3Q10 4Q10 1Q11 2Q11
Establishment Costs
0%
1%
2%
3%
4%
5%
2Q10 3Q10 4Q10 1Q11 2Q11
Marketing Expenses
0%
4%
8%
12%
2Q10 3Q10 4Q10 1Q11 2Q11
Admin & General Expenses
62.1%58.8%
62.3% 64.2% 63.3%
25.7%27.4%
31.2%28.7%
23.8%
2.3%
3.4%3.7%
1.9%
3.1%
9.9%10.4%
2.8%
5.2%
9.8%
50.6%
53.0%
50.0%
45.2%
45.9%
70
75
80
85
90
95
3.4
3.8
4.2
4.6
2Q10 3Q10 4Q10 1Q11 2Q11
Gross Impaired Loans Ratio - Old GP3 - lhs
Gross Impaired Loans Ratio - FRS 139 - lhs
Loan Loss Coverage - rhs
Asset quality continues to improve as economy recovers
% %
89.0%
91.0%
94.4%
85.6%
4.1%
3.9%3.8% 3.8%
3.9%
• The Group adopted FRS 139 w.e.f. 1
April 2010
• Asset quality remains stable at 3.8% in
2QFY2011 with focus to improve on
collection system and credit risk
• Loan loss coverage reduced from
85.6% to 83.2% in 2QFY2011
9
3.8%
83.2%
Financial Performance
FRS 139
Note: 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
0
5,000
10,000
15,000
20,000
25,000
30,000
2Q10 3Q10 4Q10 1Q11 2Q11
CASA Fixed Deposits Money Market Deposits Others
1.4%
1.8%
2.2%
2.6%
3.0%
2Q09 4Q09 2Q10 4Q10 2Q11
Cost of Funds (%)
70%
75%
80%
85%
90%
95%
2Q09 4Q09 2Q10 4Q10 2Q11
AFG Industry
Financial Performance
AFG‟s L/D ratio closer to industry average
L/D ratio within acceptable levelsIncrease in cost of funds due to competition
82.2%
76.6%
90.3% 90.6%
74.3%73.7%
78.9%
82.8%
2.7%
2.4%
1.7%
2.1%
Deposit rising on build up in fixed deposits
10
79.2%
81.3%
2.0%
92.6%
82.4%
84.1%
88.9%
73.5%
78.2%77.9%
81.4%
2.6%
2.1%
1.9%
1.7%
RM ’mil
38.1% 40.9% 41.5% 41.5% 35.4%
57.3% 51.8%51.7% 50.8% 53.8%
2.4% 4.7% 4.9% 5.9%
9.9%2.2% 2.6% 1.9% 1.8%
0.9%
1HFY10 1HFY11 % YoY
2,351.7 2,657.6 13.0%
3,253.8 3,584.1 10.2%
15.4 16.1 +0.7
11.1 11.9 +0.8
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 11.9%
and 16.1% in 1HFY2011
compared to 11.1% and 15.4%
in 1HFY2010
• Total capital base of RM3.6bil,
increased by 10.2% YoY. Tier I
capital represents 74% of total
capital, improved further to
RM2.7bil
• Healthy capital position and is
in line with BASEL III
requirements
11
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
FY 2010 FY 2011
2Q 3Q 4Q 1Q 2Q *
2.6
2.0
2.7
1.9
2.8
1.7
2.8
1.7
2.8
2.1
24.0
50.6
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
20.9
45.9
82.8
16.1
4.1
89.0
3.9
91.0
3.8
94.4
3.8
85.6
3.8
83.2
0.8
8.8
1.4x
0.9
10.5
1.4x
0.9
10.5
1.5x
1.4
14.5
1.4x
1.3
13.8
1.5x
* Note: comparison made between FY2010 against 2QFY2011
• Key Messages
AGENDA
• 1HFY2011 Financial Performance
• Questions & Answers
13
Moving from transformation journey to sustainable growth
Today
Transformation
Execution
• Focus on Execution
• Leveraging on Existing Strengths
• Synergising Lines of Business
• Productivity Management
• Sustainable Growth
AFG’s Journey
• Restructure and Improve Portfolio
Quality
• Improve Risk and Operational
Controls
• Invest in People and Technology
• Branch Expansion
• Branding
14
Organisational Chart
15
Key roles being filled
New Head Identified
Group Chief Operating Officer
Eric Lee
Group Chief Financial Officer
Low Choon Seong
Group Chief Credit Officer
Timothy Daniels
Corporate Strategy &
Corporate Communications
Group Human Resource
Michelle Chow Lai Pheng
Group Legal
S. Gerard Anand A/L S.
Sinnappah
Kay Chuan Seng
Group Internal Audit
Pang Choon Han
Group Chief Risk Officer
Group Compliance
Teow Leong Wah
Search in Progress
Consumer Banking
Choo Joon Keong
Corporate & Commercial
Banking
Steven Kenneth Miller
SME Banking
Nik Azhar Bin Abdullah
Investment Management
Tuan Haji Yahya Ibrahim
Islamic Banking
New CEO Identified
Investment Banking
Yeo Chin Tiong
Financial Markets
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
• Performance and results oriented 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
16
Gross
Impaired
Loans
CIR
ROE
Dividend
Policy
Over the medium term (3-5 years) we will ...
… continue to be 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
Y1 Y2 Y3
Looking Ahead
Key Messages
Bank is strong and performing well
Delivering value to our shareholders
We are gaining momentum
• The Group has performed well in 2QFY2011 despite a competitive operating environment
• We are executing based on transformation and investments made
• Adoption of FRS 139 had a positive impact on opening reserves and asset quality remains
stable
• Growth to be in-line with the economic cycle supported by sustainable loans growth and higher
customer acquisition capacity to build further on fee income growth
• We remain well-capitalised
• We pay good dividends
• All our business decisions will be evaluated based on a long-term perspective
18• We are ensuring growth is value creating
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
Income Statement (RM ’mil) 1HFY11 1HFY10 % YoY
Interest Income 588.3 538.4 9.3%
Interest Expense (245.0) (256.1) -4.3%
Net Interest Income 343.3 282.3 21.6%
Islamic Banking Income 114.3 109.0 4.9%
Non-Interest Income 115.6 117.4 -1.5%
Net Income 573.2 508.7 12.7%
Operating Expenses (261.2) (269.2) -3.0%
Operating Profit 312.0 239.5 30.2%
Write back/Allowance for NBD (23.4) 53.8 -143.5%
Allowance for Impairment (0.7) (122.8) -99.4%
Loan Impairment Allowances (24.1) (69.0) -65.1%
Profit before Taxation &
Zakat287.9 170.5 68.8%
Taxation & Zakat (75.0) (46.2) 62.3%
Profit after Taxation & Zakat 212.9 124.3 71.3%
2QFY11 1QFY11 % QoQ 2QFY10 % YoY
311.6 276.7 12.6% 268.5 16.1%
(137.4) (107.6) 27.7% (123.5) 11.3%
174.2 169.1 3.0% 145.0 20.1%
58.7 55.6 5.6% 49.6 18.3%
64.0 51.5 24.3% 55.6 15.1%
296.9 276.2 7.5% 250.2 18.7%
(136.4) (124.8) 9.3% (126.8) 7.6%
160.5 151.4 6.0% 123.4 30.1%
(22.8) (0.5) 4460.0% 79.8 -128.6%
(0.1) (0.6) -83.3% (95.1) -99.9%
(22.9) (1.1) 1981.8% (15.3) 49.7%
137.6 150.3 -8.4% 108.1 27.3%
(35.2) (39.8) -11.6% (30.0) 17.3%
102.4 110.5 -7.3% 78.1 31.1%
Income Statement
20
2.1%
2.5%
2.9%
3.3%
Apr-09 Aug-09 Dec-09 Apr-10 Aug-10
Group Corporate
3.4%
3.8%
4.2%
4.6%
Apr-09 Aug-09 Dec-09 Apr-10 Aug-10
Commercial
3.8%
4.2%
4.6%
5.0%
Apr-09 Aug-09 Dec-09 Apr-10 Aug-10
SME
3.0%
3.3%
3.6%
3.9%
Apr-09 Aug-09 Dec-09 Apr-10 Aug-10
Consumer
KEY DRIVERS
NIM NIM NIM NIM
Financial Performance
NIM remains at 2.8% despite intense competition
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 Sep-10
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10
AFG 3.1% 3.1% 3.0% 2.9% 2.6% 2.3% 2.6% 2.7% 2.8% 2.8% 2.8%
21
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 Sep-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 Sep-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 6.2
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 12.5
MIER Consumer Confidence IndexInterest Rates MovementReal GDP Growth (%YoY)
KEY DRIVERS
*
* after interest-in-suspense
Loan Drivers
22
Loan drivers
Economic PurposeLoan
(RM ’mil)% YoY
Gross
Impaired
Loans
(RM ’mil)
% Share
Gross
Impaired
Loans Rate
(%)
Purchase of Securities 340.0 3.1% 17.0 2.0% 5.0%
Purchase of Transport Vehicles 789.4 -23.8% 10.3 1.2% 1.3%
Purchase of Landed Property 11,322.9 4.8% 314.9 37.7% 2.8%
Purchase of Fixed Assets 90.7 50.4% 0.2 0.0% 0.2%
Personal Use 2,094.0 30.0% 39.7 4.8% 1.9%
Credit Cards 652.7 -4.6% 14.1 1.7% 2.2%
Construction 224.1 -30.4% 14.0 1.7% 6.2%
Working Capital 5,700.1 10.9% 376.1 45.0% 6.6%
Others 623.0 9.9% 49.1 5.9% 7.9%
Total 21,836.9 6.2% 835.4 100.0% 3.8%
Loans & Asset Quality
23
Loans by LOB
24
Breakdown of loans by LOB
1H08 2H08 1H09 2H09 1H10 2H10 1H11
Consumer 51.4% 53.3% 53.4% 55.3% 59.2% 59.8% 59.1%
Corporate & Commercial 43.0% 42.9% 44.1% 20.3% 19.8% 19.2% 19.7%
SME n.a. n.a. n.a. 22.7% 19.6% 19.8% 20.2%
Exit Books 5.6% 3.8% 2.5% 1.7% 1.4% 1.2% 1.0%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Note: the separation of SME business from Commercial Banking since 2H09
0
10
20
30
40
50
60
70
2Q10 2Q11
Non-interest income - driven by improving market conditions
16,394
25,857
3,394
4,912
9,848
RM ’000
6,382
3,7997,359
12,106
5,907
3,515
5,460
6,353
55,637
64,078
8,429
% YoY
+57.7%
+44.7%
-14.4%
-40.5%
+64.5%
-40.5%
-14.1%
Commission & Fees
(40.4%)
Wealth Management
(7.7%)
Credit Cards
(13.2%)
Brokerage Fees
(5.9%)
Investment Sales Gain
(18.9%)
Other Non-Operating
(5.4%)
Forex
(8.5%)
Note: ( ) denotes share of each component to total non-interest income25
Financial Performance
0
20
40
60
80
100
120
1H10 1H11
43,130
9,049
7,450
23,855
7,205
8,244
115,588
16,655
RM ’000
35,215
7,694
15,848
18,450
12,072
8,148
117,384
19,957
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
26
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
27
Future Opportunities
• Leverage relationship and risk management strengths in SME and Corporate & Commercial
LOBs - key beneficiaries of improving economic environment
• Ongoing productivity improvements in Consumer Banking will have significant upside
• Islamic product suite a complement to conventional as sector continues to be actively
promoted
• Wealth management and other fee income opportunities to enhance margins
• Investment Banking and Asset Management capabilities currently under-utilised - attractive
businesses with high cross sell potential
• Significant value creation opportunity from Treasury
28
Market assessment indicates significant additional potential for AFG
Collateralised Loan Obligations (CLOs) are a matter of the past
• As at March 2010, the
Group had made
100% provision
Key points: • Matured
• AFG’s exposure at
super senior level
• Matured
• AFG’s exposure is fully
covered
29
CLOs
(RM ’mil) Kerisma Idaman Capital CapOne
Total
Issuance
AFG’s
Exposure
Total
Issuance
AFG’s
Exposure
Total
Issuance
AFG’s
Exposure
• Total Issuance 1,000mil175mil
(17.5%)800mil
240mil
(30%)1,000mil
10mil
(1%)
• Maturity Date Jun-09 Oct-11 Sep-10