KUALA LUMPUR (March 5): The confluence of factors - margin compression, a tougher macroeconomic environment, escalating costs and depreciation of the ringgit may bother many in the banking industry, but it seems not Alliance Financial Group (AFG) chief executive, Joel Kornreich, who has been at the helm of the group for just over a year.
Because unbeknownst to many, Kornreich is used to navigating banking businesses through choppy waters. Case in point - he was in Europe in 2009 with Citigroup, and was tasked to turn around the group's operations in Greece, Spain - where the unemployment rate at the time was 26% - and Belgium, which he did.
Hence, as the new captain of AFG, Kornreich is "unperturbed by the increasingly hostile environment", wrote The Edge Malaysia (March 7-13) in its latest cover story.
“Frankly, I feel very lucky because Alliance Bank [the banking subsidiary of AFG] has extraordinarily strong bases to grow from, and that’s not given to everybody. There are cycles. It’s not exactly horrible. It’s just a lot more constrained than previously,” he told The Edge's Joyce Goh and Adeline Paul Raj in his first interview since taking charge of AFG, Malaysia's smallest banking group.
Since taking over and crunching the numbers, Kornreich found that there was a huge opportunity to expand the group on the strength of the bank.
“In order to have a successful development of the bank, it is also necessary to focus on strengthening the balance sheet and making the bank more efficient. We spent a big part of the year doing that,” he said, adding that the group is banking on things that are more transformational.
After laying the foundations, the banking group is now ready to fire on all cylinders, the weekly wrote.
In the nine months ended Dec 31, 2015, AFG’s total capital ratio strengthened to 17.1% with its common equity Tier 1 ratio now one of the highest in the industry at 11.3%. Its CASA ratio also rose to 35%; gross impaired loans ratio remained stable at 1.1% versus the industry’s 1.6%, while loan loss coverage improved to 125.4% from 94.2% previously.
However, AFG saw the allowance made for loan advances and financing nearly double year on year to RM42.8 million during the nine-month period. Its cost-to-income ratio rose to 47.4% during the period from 46.8% in FY2015 ended March 31 on the back of higher operating expenses.
The group’s return on equity declined to 11.4% from 12.3% in FY2015 while net asset value per share expanded to RM3.02 from RM2.90.
On the bright side, the group saw its loan portfolio yields improve to 5.13% — higher than the industry average of 4.54%, partly due to its high-risk adjusted return loans growing twice as fast as its low-risk adjusted return loans, which was the reverse previously.
Now is definitely not the time to rest on his laurels and Kornreich isn't. "In the coming year, we will begin executing the transformation and rolling out some of the value propositions," he said. Though the financial impact of that will not be felt until the end of this financial year, Kornreich is confident the group will continue to go on a good trajectory.
"We feel that in the next financial year, we’ll have a good chance of maintaining or expanding our margins. We also feel that although the [present] economic conditions are a bit more difficult than last year, we [still] have a strong base to work on ... we have a good chance of growing faster than we did last year. We have to do it efficiently as well," he said.
To find out more about his plans for AFG, and what makes Kornreich the turnaround specialist he is today, pick up a copy of The Edge Malaysia from newsstands near you.
P/S: Don't forget — The Edge Malaysia can also be downloaded from Apple's Newsstand and Androids' Google Play.