PETALING JAYA: Affin Bank Bhd’s outlook is expected to be positive, underpinned by its plans to focus on growing asset quality, fee income and net interest margin in 2023.
TA Research in a report said share margin financing, credit cards, personal financing and small and medium enterprises financing are some of the assets that will be focused on by the group in 2023.
The research house believes that moving towards higher margin assets was timely, as industry margins are being compressed by rising competition.
Meanwhile, in an effort to make up for the shortfall from the recent sale of AHAM Asset Management, Affin Bank sees chances to boost the fee income more significantly this year.
The group also sees potential in strengthening investment banking, foreign exchange and trade as it was observed that investment banking activities have gained momentum after closing a number of corporate agreements recently.
As Affin Bank focuses on strengthening its core earnings, TA Research foresees less volatility in its fair value through other comprehensive income portfolios.
However, despite the positive outlook, loan growth momentum is expected to slow down in 2023 due to softer economic growth.
Affin Bank’s loan growth has always surpassed its peers due to robust demand from community banking and enterprise banking previously.
However, in 2023, the group targets to grow loans at a more moderate pace of 12% after outperforming expectations.
The group’s cost-to-income ratio and overhead expenses are also expected to increase in 2023, in which the overhead expenses increase could be affected by higher personnel, marketing and information technology-related expenses.
Further delays in the new mobile banking app’s release could also lead to a possible outflow of deposits, particularly deposits in current accounts and savings accounts, which could reduce net interest margins because of its rising cost of funds.
On a positive note, despite the slight downward revision of around 9.2% to its income statement, Affin Bank is now on a firmer footing in terms of the loan loss coverage, which has expanded to reach 123.8% and closer to peer average compared to 30% to 40% in 2019.
“The gross credit charge is foreseen to improve to around 30 basis points from 97 basis points in financial year 2022 (FY22), while gross impaired loans ratio is set to remain stable at about 1.9%, in line with our projections,” TA Research said.
TA Research reiterated a “buy” call on Affin Bank with a target price of RM2.30 per share.
