Affin to see better prospects this year — Analysts

KUCHING: Analysts believed Affin Holdings Bhd’s ( Affin) prospects is poised to improve this year.

Following a company’s briefing, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) in a report yesterday said the banking group’s transformation programme, Affinity Transformation implemented at Affin Bank level has started to bear fruit.

The research firm observed that the results of the transformation programme was evident with the bank’s strong net profit growth recorded for the financial year 2016 ( FY16) ended December 2016.

It noted the banking group’s FY16 net profit has beaten the research firm’s and consensus’ expectations where Affin Bank posted FY16 net profit growth of 52.7 per cent year-on-year (y-o-y) due to higher income and lower provisions.

MIDF Research gathered from the company’s management that credit recoveries have normalised and the group were not relying on recoveries as the earnings driver.

Besides that, the research firm noted the banking group’s FY16 income growth of 7.4 per cent y-o-y to RM1.94 billion were from higher non-interest income (NOII) and Islamic banking income which grew 12.5 per cent y-o-y and 14.2 per cent y-o-y respectively.

The research firm observed that the higher income was in line with the group’s strategy of income based growth.

It noted the approach had also led to net interest margin (NIM) improvement of six basis points y-o-y to 1.98 per cent as the group was actively seeking to find better pricing for its product and funding.

Moreover, MIDF Research gathered that the banking group will refocusing its strategy from an asset growth approach to an income growth approach.

It noted the implementation will be through focusing on asset quality, right product mix and rebalance of assets and liabilities.

With the new growing income based approach, MIDF Research opined the group will be concentrating on growing quality assets and realigning its assets and liabilities.

Going forward, MIDF Research believed Affin will be targeting more high net-worth consumer and client from the small medium enterprise (SME) and corporate segments.

For the consumer segment, the research firm gathered that the bank will be targeting mortgages for affordable homes.

The research firm was positive thatthegroupwillbeconcentrating on lending for affordable homes as it believed that the demand for the affordable housing segment is high and hence there is potential to be tapped.

Besides that, amongst other initiatives that will bring sustainable profitability to the banking group is the rebalancing of the bank’s deposit mix.

The current account savings account (CASA) expansion will be key to income growth where CASA ratio needs to grow from the 18.7 per cent posted as at fourth quarter of 2016 (4Q16).

In addition, the research firm also gathered that the group will also look at diversifying the deposit composition such as increasing the consumer segment contribution from the current 26.5 per cent.

Nonetheless, it noted the banking group might conduct cost optimisation exercise in the near future.

Thus, MIDF Research believed the cost optimisation exercise is necessary to contain the operating expenditure growth.

Apart from that, the research firm said other initiatives that the banking group could do to rein in cost include investment in information technology (IT) infrastructure that will ensure lower establishment cost from smaller branch footprint. SHORT-TERM interbank rates closed stable yesterday on Bank Negara Malaysia’s (BNM) intervention to absorb excess liquidity from the financial system.

The liquidity surplus in the conventional system declined to RM28.19 billion from RM33.99 billion in the morning, while in the Islamic system, it eased