Despite competition intensifying for deposits Kenanga Investment Bank has maintained its OUTPERFORM rating on Alliance Bank Malaysia Bhd (ABMB), with an unchanged target price of RM5.50, as the bank’s loan growth, adding that deposit strategy and capital position remain supportive.
In its latest research note, Kenanga said competition for longer-term deposits could intensify following the US Federal Reserve’s interest rate hike and expectations of a possible increase in Bank Negara Malaysia’s Overnight Policy Rate (OPR).
However, deposit pricing trends, particularly for fixed deposits, have remained consistent with Alliance Bank’s revised net interest margin (NIM) guidance of 2.23% to 2.28%.
Loan Growth Remains On Track
Kenanga said Alliance Bank’s loan pipeline remains on course to meet management’s growth guidance of 7.5% to 10%.
The bank is expanding its lending business in Sabah, Sarawak, Johor and Penang, where loan growth reached 8% year-on-year, compared with the industry’s 7%.
Its financing activities include supply-chain businesses supporting data centre developments, while the bank remains selective in personal financing.
Alliance Bank is also using its mortgage business to attract new customers and build its deposit base, adding approximately 7,000 customers a month.
Kenanga expects the expanding customer base to support growth in non-interest income, particularly through wealth management products such as unit trusts and bancassurance.
Dividend Outlook Supported By Capital Position
Despite the recent increase in bond yields, Kenanga expects Alliance Bank’s dividend outlook to remain intact.
The research house estimated that higher yields could have an approximately 1% impact on earnings from fixed-income securities classified as fair value through profit or loss.
However, about 98% of the bank’s fixed-income securities subject to mark-to-market adjustments are classified as fair value through other comprehensive income, with valuation changes reflected in reserves rather than directly in profit.
Alliance Bank’s Common Equity Tier 1 (CET1) capital ratio stood at 13.4%, including first-quarter FY2027 profits.
Kenanga estimated that even after the recent increase in Malaysian Government Securities yields, the CET1 ratio could remain above 13%.
The bank is also expected to benefit from an additional 60 to 70 basis points in capital following the adoption of the final Basel III reforms.
Kenanga maintained its forecast dividend payout ratio of 50%, at the upper end of Alliance Bank’s guidance of 40% to 50%.
Asset Quality Remains A Key Area To Watch
On asset quality, Kenanga noted that past-due loans in Alliance Bank’s SME and consumer segments had increased in the first quarter of FY2027 and could remain elevated in the near term amid the ongoing Middle East conflict.
Nevertheless, the research house does not expect immediate pressure on the bank to increase its loan loss coverage, which stood at 113%, including regulatory reserves.
Kenanga made no changes to its earnings forecasts or RM5.50 target price, which is based on a price-to-book valuation of one time.
The research house expects loan expansion, growth in wealth management income and a stable capital position to continue supporting Alliance Bank’s financial performance.
