Affin Bank’s highlight during a recent briefing with MIDF analysts, according to the summary it is understood that all the bank’s build-up in overlays will be converted into company-specific provisions. Meanwhile, it was also noted that the management is expecting 3QFY23 to be another heavy quarter for provisions but the provisions in 2QFY23 is still manageable.
On the reports of Affin’s exposure in a pharmaceutical company, the management remained tight-lipped, but it was emphasised that it will be fully provided. NIMs may see further compression in 2QFY23. This is because deposit competition is still very tight in the Islamic space, though it has improved on the Conventional side. Interestingly, management believes that this deposit competition is mainly concentrated among certain banks.
As for the loan growth target, Affin says it is still in reach and is confident in achieving +12%yoy FY23 target also reiterates it is pumping breaks to slow down on the current rate of growth – especially on the lower yielding residential mortgage segment. The Bank said it will be more selective in growing its corporate portfolio. As part of NIM optimisation strategy, the Group remains committed to building its credit card and personal financing loans. The management does mention that hire purchase applications are slowing down for now. Following its exorbitant loan growth, Affin finds loan competition coming in from larger banks now, as opposed to smaller banks previously.
The major drivers for OPEX growth are personnel and tech spend, with cost inflation and Collective Agreement issues coming up. No change in dividends expectation. Management indicated that the dividend payout still retained at 40-60%. Meanwhile, for the latest DRP, MIDF understands that it had 71% take up rate.
Sarawak story – still no concrete plans. It was hinted at Sarawak state wanting a larger stake than the current 4.95%. Growth in Sarawak is apparently exceeding expectations: Management wants to double up on this growth and will up its branch network. Tech and mobile app are delayed again. App, scheduled for release in Jun-23, has been delayed again due to a bug issue – this time to July/August. This puts a dent to its CASA target of 25% by year-end (currently 22%). The app is for retail users – but management believes that this will have a positive knock-on effect on its corporate app. For app promotion, management will be piggybacking on pre-existing media plans, to manage marketing cost.
In addition, management will be leveraging on big data tech (estimated rollout: Dec-23) to improve customer personalisation This improves cross-selling, build fee income franchise and customer loyalty. Bond issuance. Interestingly, Affin’s recent RM500m AT-1 issuance (5.7%) was 100% subscribed to by retail investors – 1.3x oversubscribed. Forecasts revised: FY23F Core NP adjusted by -10%.
To reflect higher NCC and lack of overlay writebacks in the year. Key downside risks. OPEX unable to be controlled, Lacklustre NOII recovery, NCC higher than expected.
