This article first appeared in The Edge Financial Daily on July 12, 2018

KUALA LUMPUR: After a slight dip in the bottom line of the previous financial year, Alliance Bank Malaysia Bhd is aiming for a 10% growth in net profit in the financial year ending March 31, 2019 (FY19).

The earnings growth will be supported mainly by a targeted 10% loan growth and improved returns from initiatives under its transformation programme, Alliance Bank chief executive officer Joel Kornreich said.

The bank expects FY19 revenue to grow 6%, he told reporters at a press briefing following the group’s annual general meeting yesterday.

“Loan growth will be primarily supported by [the growth in] Alliance ONE accounts, the small and medium enterprise (SME) segment, and personal financing,” he said, adding that growth in the Alliance ONE segment is expected to contribute some 70% of overall loan growth.

“We will continue to expand our workforce for the Alliance ONE accounts ... the increase in revenue will compensate for the expense,” Kornreich said, adding that about half of its expenses under transformation were one-off costs for restructuring.

The group also expects credit costs to remain stable as a percentage of assets, he said.

In FY18, Alliance Bank’s net profit slipped 3.7% to RM493.23 million, largely due to expenses related to its transformation programme, which had included branch consolidation and workforce expansion.

This was despite a 7% increase in full-year revenue to RM1.57 billion, making it the group’s highest revenue growth recorded in the last five years. The top line growth was driven by higher net interest margin, volume growth and non-interest income, said Alliance Bank.

“Incremental revenue of RM103  million more than compensated for the RM74.2 million [of expenses incurred] under our transformation initiatives,” it said in a statement yesterday.

Additionally, Kornreich said the programme has enabled a savings of RM20 million per annum for the group, with additional revenue from the Alliance ONE segment expected to offset further expenses this year.

In the bank’s most recent annual report, Kornreich said the bank aims to “acquire over 1,200 new-to-payroll companies, and more than 60,000 new consumer current and savings accounts”.

With that, the bank will then be able to cross-sell its SME loans for new-to-bank companies, personal loans, credit cards, Alliance ONE account, and bancassurance solutions, Kornreich had said in the report.

The group targets a 20% rise in SME loan growth in FY19, with loan disbursements per month targeted to double to RM300 million by the end of the financial year.

Regarding the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9) in January this year, Alliance Bank has recorded a 25% increase in provisions and a reduction of 40 basis points for its Common Equity Tier 1 (CET1) capital ratio, said Raymond Wong Lai Loong, group chief financial officer.

The adjustments resulted in a neutral effect on the bank’s FY18 as the CET1 capital ratio had grown 40 basis points as well, said Kornreich.

Going forward, he said the bank also recognised headwinds in other sectors, such as the slowdown in infrastructure spending, and will therefore continue to focus on the SME and consumer markets, where consumer sentiment is seen to be improving.

The group’s independent and non-executive chairman Tan Sri Datuk Ahmad Mohd Don said the banking industry remains competitive. As one of the smaller players, Alliance Bank would have to continue working hard, he added.