PETALING JAYA: Margin compression remains a key challenge for Alliance Bank Malaysia Bhd
amid intensifying competition for mortgage financing and deposits, as well as a shift towards lower-yielding secured consumer and business loans.
Loan growth is expected to remain a key earnings driver, although management has become more measured on the pace of expansion.
TA Research said it expects Alliance Bank to deliver a relatively resilient second quarter of the financial year 2027 (2Q27), supported by steady loan growth, healthy demand from the business banking segment, and continued momentum in fee-based income.
Despite that, the research house said earnings may ease from the exceptionally strong RM248.3mil net profit recorded in 1Q27, as net interest margin (NIM) pressure persists and credit costs gradually normalise.
“Recall that 1Q27 net profit grew 25% year-on-year (y-o-y) and 20.5% quarter-on-quarter (q-o-q), driven largely by sharply lower impairment charges, even as pre-provision operating profit declined 1.8% y-o-y,” the research house said in a report yesterday.
TA Research said NIM narrowed by five basis points q-o-q to 2.26% in 1Q27, compared with 2.31% in 4Q26 and 2.42% a year earlier.
“While mortgage pricing has become increasingly competitive, management has indicated that the bank will not chase volumes through aggressive pricing.
“Instead, it remained focused on preserving overall relationship profitability by cross-selling deposits, wealth management products and other banking services,” the research house said.
TA Research said NIM pressure is likely to persist as the bank continues to rebalance its portfolio away from higher-yielding personal loans towards secured consumer and business lending.
At the same time, intense competition for deposits is expected to keep funding costs elevated, limiting the scope for meaningful margin recovery in the near term.
“As such, we expect margin expansion to remain challenging throughout FY27,” the research house said.
TA Research noted following its 1Q27 results, Alliance Bank lowered its NIM guidance to 2.23% to 2.28% from 2.28% to 2.35%, while revising its net credit cost guidance down to 20 basis points (bps) to 25 bps from 27 bps to 32 bps. The bank maintained its loan growth target of 7.5% to 10% (including unrated bonds), alongside a cost-to-income ratio of 47.5% to 48.5% and return on equity of 10% to 10.5%.
“Heading into the upcoming results, management remains confident that performance will stay within its guided ranges. That said, we remain positive on Alliance Bank’s longer-term growth trajectory, supported by its strong business banking franchise, expanding regional footprint and growing fee-income base.
“In the near-term, however, earnings growth could be tempered by persistent NIM pressure, intense deposit competition and ongoing investments to support future growth.”
TA Research said while asset quality remains broadly manageable, it expects credit costs to normalise from the exceptionally low level recorded in 1Q27.
To recap, net credit cost fell to just 0.3 bps in the quarter, compared with 14.4 bps a year earlier, largely driven by corporate recoveries.
“Management noted continued improvement in small and medium enterprises and commercial asset quality, although some borrowers face cash flow pressures from supply chain disruptions and higher operating costs.
“There has also been a modest rise in accounts migrating into the 30-days-past-due bucket,” the research house said.
