KUALA LUMPUR (Aug 4): Alliance Bank Malaysia Bhd is not experiencing a slowdown in loan demand despite rising interest rates and inflation, said its outgoing chief executive officer Joel Kornreich.

“Although we do recognise that inflation and interest rates may impact the capacity of the repayers at some point, for now we don’t see a great deal of change,” Kornreich told reporters after the group’s 40th annual general meeting on Thursday (Aug 4).

Management expects a loan growth of 6%-8% for the financial year ending March 31, 2023 (FY23). This compares to the group’s loans growth of 4.6% in FY22.

“We don’t see a significant slackening in the loan demand. In terms of any difficulties that clients may face, I think we are still pretty much in the business-as-usual (situation),” he said, adding that over 80% of the bank’s loans are on floating interest rates.

Kornreich said Alliance Bank, on average, commands 3% to 4% of total industry loans, but it is “overrepresented” in the small and medium enterprise (SME) segment with a 5% market share and is on track to achieving its 9% target in the SME market by FY26 or FY27.

For FY23, Kornreich said Alliance Bank stands by its guidance to hit return on equity (ROE) of 10% and above, net interest margin (NIM) of 2.5%, 40 to 45 basis points for credit costs, and cost-to-income ratio of less than 45%.

For FY22, Alliance Bank’s NIM expanded to 2.5% from 2.3% in FY21, while ROE was 9.2% in FY22 and 5.9% in FY21.

“Our net interest margin for now is quite stable. We do realise that there is competition on the deposits but our composition of deposits helps us because we have a large proportion of CASA (current-account-savings-account), about 50% in our deposits,” he said.

Kornreich also updated that the bank currently has about RM450 million of forward looking provisions that were booked during the pandemic.

“We are going to be careful on how we write them back. It is not that we won’t write them back, but we will write them back only if we see long-term improvements in clients repayment,” he said.

Kornreich said the current 44.1% cost-to-income ratio that Alliance Bank held in both FY21 and FY22 is not good enough, but it is going to take a couple of years to reduce it to a good target of 40%.

At this juncture, he believes the cost-to-income ratio will stay stable as the group invests in the transformation.

Kornreich also affirmed that Alliance Bank has not changed its dividend policy of paying out up to 60% of its earnings, adding that the group “still looks at it as a balance between what we can give back to shareholders and how much we need in capital to support the growth of the business”.

Alliance Bank declared a dividend of 18.5 sen per share for FY22, equivalent to a 50% payout ratio, versus 5.8 sen back in FY21 or a 25% payout ratio.

In comparison, prior to the pandemic, the bank paid 16.7 sen dividend in FY19, equivalent to a 48.1% payout ratio.

Alliance Bank’s shares, which climbed 25% year-to-date, closed four sen or 1.2% higher at RM3.49 per share, giving it a market capitalisation of RM5.4 billion.