KUALA LUMPUR (July 26): Alliance Bank Malaysia Bhd (ABMB) expects net interest margin (NIM) compression in FY2024 as competition for deposits remain stiff.

The bank recorded a NIM of 2.64% for the financial year ended March 31, 2023 (FY2023), from 2.53% in FY2022, against a backdrop of four consecutive hikes of 100 basis points (bps) to the overnight policy rate (OPR) by Bank Negara Malaysia (BNM) last year.

BNM paused the hikes in January and March, before implementing another 25 bps increase in May this year, pushing the OPR to 3%.

“As you all may be aware, the rise in OPR [has caused] a fair amount of deposit competition in the year. We do expect that [competition] to persist for the full year. So from that aspect, we do expect NIM to compress. And as I mentioned, our NIM closed at 2.64% in FY2023, and we do think we would be able to get NIM for the full year to around the 2.50% to 2.55% mark for FY2024," ABMB group chief executive officer Kellee Kam told a virtual press conference after the group’s annual general meeting on Wednesday (July 26).

ABMB's GIL to rise to 3% in FY2024 amid an uptick in delinquencies

Kam also expects the bank's gross impaired loans (GIL) ratio to rise to 3% for FY2024 as a higher interest rate environment continues to weigh on debt borrowers as borrowing costs increase.

“For GIL, we close the year (FY2023) at 2.5% and that is higher than the previous year in a combination of a couple of things. Firstly, we did see some pressures in certain sectors. So [for] one of our customers in the construction sector, we have to take an impairment.

"Second is as we lift out of the [loan] moratorium, we have seen some companies starting to feel some pressure, but certainly because of the increase in OPR, we have also seen some increase in delinquencies. They are, however, still within our expectations.

"For Alliance Bank specifically, it is pretty well covered as over 70% of our book is collateralised and our loss coverage ratio is still about 123%. We do expect further pressures throughout the year, but we don't expect our GIL to be over the 3% mark for the full year,” Kam explained.

The bank's GIL has risen from 1.85% in FY2022, which was an improvement from FY2021's 2.34%.

Loan growth projected to increase up to 10% for FY2024

Despite a moderation in the Malaysian economy this year, Kam believes the current interest rate environment will still be accommodating for businesses and banks.

“From our perspective, we do see some moderation in the Malaysian economy from the previous year. Notwithstanding that, we do still see a very accommodating environment for businesses to grow and for banks to grow.

“We do expect that the interest rates are currently still accommodative for growth. Internally we do expect loan growth in Malaysia to be around the 5% mark and as such, it is accommodative for the banks," he said.

ABMB is looking at stronger loan growth of between 8% and 10% in FY2024, from 6.2% in FY2023, driven by its core segments, namely the small and medium enterprises (SMEs) and commercial businesses.

Kam said the bank believes that those segments will continue to perform at double-digit growth, with SMEs at 12% and commercial businesses at 13%.

“We also expect consumer business to come up towards a single high digit and operate to also record positive growth, to come up to a total of 8% to 10% for the full year,” he said.

ABMB shares closed unchanged at RM3.47 on Tuesday, giving the banking group a market capitalisation of RM5.37 billion.