Alliance Bank to see improved GIL ratio in 3QFY24
KUCHING: Alliance Bank Malaysia Bhd’s (ABMB) third quarter of financial year 2024 (3QFY24) results which is slated to be released next month, is expected to see its gross impaired loan (GIL) ratio continuing to trend lower after coming off a peak of 2.63 per cent in 1QFY24.
In a company report, analysts at AmInvestment Bank Bhd (AmInvestment Bank) reported that the group’s GIL ratio had declined in October and November 2023 before inching up slightly in December 2023.
“Hence, for the full quarter of 3QFY24, the ratio is likely to trend lower quarter over quarter (q-o-q).”
In tandem, delinquency rates (over 30 days past due) are likely to decrease for the second consecutive quarter in 3QFY24 with q-o-q improvement in all loan segments, consumer, SME, commercial and corporate.
“Arising from this, we do not expect negative surprises for provisions in 3QFY24. Hence, we maintain our credit cost assumption of 32 basis points (bps) for FY24F which is within the management’s guidance of 30 to 35 bps,” AmInvestment Bank guided.
It expected management overlays which stood at RM208 million at the end of 2QFY24 to be converted into provisions based on MEV reviews as well as partly utilised to cover asset quality risk for specific loans ahead.
Nevertheless, it expected the GIL ratio to remain elevated in the near-term or at least in the next two quarters due to macro headwinds.
For the rest of the 3QFY24 results, AmInvestment Bank is expecting the results to register a higher net profit than the RM185 million recorded in 2QFY24, supported by an improvement in net interest margin due to lower cost of funds, robust loan growth, and stronger non-interest income (NOII) due to higher treasury and markets income.
With a higher NIM expected in 3QFY24, the bank is likely to meet its own guidance of 2.45 to 2.5 per cent in FY24, a compression from 14 to 19 bps from FY23.
“With the absence of expenses of additional headcounts in 2QFY24, we anticipate a lower operating expenditure (q-o-q) in 3QFY24 with stable provisions on the back of improving loan delinquency rates,” it added.
With ABMB currently trading at a fair FY24F price book valuation (PBV) of 0.8times, which is close to tis 5year historical average of 0.9times, AmInvestment Bank is maintaining its ‘Hold’ call on the bank with an unchanged fair value of RM3.60 per share that is pegged to a PBV of 0.8times supported by a FY24F return on equity (ROE) of 9.6 per cent.