This article first appeared in The Edge Financial Daily on April 30, 2019

KUALA LUMPUR: Affin Bank Bhd, targeting for its loan book to expand between 3% and 4% this year, said it is banking on its consumer and small and medium enterprise (SME) segments to drive growth.

Affin Bank group chief executive officer Kamarul Ariffin Mohd Jamil told a press conference after the group’s annual general meeting here yesterday that the target, which he considered “conservative”, reflects the overall market sentiment. However, there are pockets of opportunity for growth, he said.

The group has earmarked RM150 million for capital expenditure this year, to be invested in various areas, particularly information technology, in line with Affin Bank’s ongoing transformation plan, he said.

The group will also continue to invest in the SME segment — Affin Bank’s “mainstay” moving forward — which he said has shown commendable growth in

assets and liabilities.

“We want to grow [our] SME [segment] to about 20% [of our total loan portfolio] in about three to four years ... An ideal book size for us is perhaps 40% consumer, 40% corporate and 20% SME,” he said.

Currently, half of the group’s loan portfolio is contributed by its consumer segment, followed by corporate at 42%, and the balance 8% from its SME segment, according to Kamarul.

“We have assembled quite a good team to develop our SME portfolio, and have now got business centres at almost all over the country. But we are very selective in terms of growth as SMEs come with risks.”

The growth in its SME segment, as well as other higher yielding assets, is expected to help defend Affin Bank’s margin this year, which Kamarul sees the risk of a five- to 10-basis points compression, mostly as a result of the Malaysian Financial Reporting Standards.

“We are trying to defend our margin, but we do expect some minor margin compression to come.

“Of course we will try to maintain our margin by not only booking in loans which give us better yields, but also trying to grow our current and savings accounts — one of the key areas,” said Kamarul.

More digital offerings to be introduced

The group is planning to introduce more digital offerings this year, including the new retail Internet banking Affin Pay@E-wallet and mobile Internet banking.

On corporate banking, a new transaction banking system will be launched in July and while the new SME colony is in progress, in collaboration with financial technology players.

“Some systems are quite obsolete, so we really need to replace them. We hope when we start replacing these, we will be able to grow our operating account — key for us to maintain our margin,” he said.

Meanwhile, Affin Bank will work towards lowering its cost-to-income ratio to below 60% this year, from about 63% in 2018, which Kamarul deemed as high due to the banking group’s investments in people and its transformation plan.

The group is also hoping to normalise its non-performing loan ratio, currently at 3.5%.

“We were impacted in 2018 because of a few large accounts. We are nursing these accounts back to health, so we hope in 2019, we will be able to normalise it and bring it [to] below 3%, closer towards the 2% level,” said Kamarul.

Affin Bank shares finished two sen or 0.91% higher at RM2.21 yesterday, with a market capitalisation of RM4.39 billion.

In the financial year ended Dec 31, 2018 (FY18), Affin Bank recorded a 6.3% growth in gross loan, advances and financing to RM49 billion, while total customer deposits rose 12.6% to RM57.3 billion. The group’s total assets grew 8.5% to RM76 billion.