Published: July 14, 2012
By DALJIT DHESI
daljit@thestar.com.my
ALTHOUGH many analysts do not really know Sng Seow Wah as well as they might other bank CEOs, the one thing they are certain of is that his actions thus far have been fruitful in raising the bank to a higher level amid stiff competition in the banking sector.
Industry observers and analysts agree that despite being one of the two smaller banks in the country, Alliance Bank has been positioned for further growth with Sng at the helm.
For the non-interest income or fee segment, the bank's aim to achieve a 30% contribution to its revenue in the next three years is achievable judging from the fact that this figure currently stands close to 27%, he adds.
The areas of focus in non-interest or fee income, among others, the analyst says is transaction income, wealth management, bancassurance and foreign exchange transactions.
According to the analyst, one of the reasons the bank decided to change its focus to the current two businesses from mortgages previously is due to lower margins as it involves a capital charge. As for non-interest income, he says there is no such charges and as such the bank's capital position is not affected.
The challenges for Alliance as a smaller banking entity compared with the bigger banking groups like Maybank and CIMB is in terms of issuing corporate loans for financing mega projects like the Economic Transformation Programme (ETP), he says. He adds that such projects normally favours bigger banks due to their stronger balance sheets.
Another challenge for the bank, he says, is in regional deals and investment banking. For SME loans, Alliance Bank is targeting an 18% growth this year compared with 16% last year. The bank's gross portfolio is RM25bil with SME loans amounting to about RM5.3bil. The contribution from SME banking to group pre-tax profit currently is 16%. Besides SME, the consumer loan market is also looking up for Alliance Bank. Housing loan growth was at 13% compared with 9% two years ago. For hire purchase (HP), the business is now close to RM600mil outstanding, and Sng in an interview recently said it wanted to grow the HP in a focused way moving forward.
A research head of a brokerage, however, feels that Alliance Bank is at a disadvantage in terms of market and brand presence in view of its size unlike bigger banks.
In terms of loans, people will tend to borrow from bigger banks due to their large branch network as they are comfortable in dealing with big names like Maybank, CIMB, Public Bank and other bigger players.
While he agrees that SME banking was one of the ways to diversify risk, nonetheless he says it is a costly affair as it is expensive to do SME marketing as many staff will be needed to carry on such activities on a bigger scale.
Although non-interest income is one of the major focus of the bank it is still viewed as a big hurdle for Alliance, he says, adding that this type of business usually revolves around bigger banks that have large network of branches to facilitate transaction income. The analyst does not for the time being foresee any form of merger and acquisition for Alliance Bank.
Meanwhile, Alliance Bank executive vice-president and head of consumer banking Ronnie Lim (pic) says it has embark on a four-pronged strategy to grow its wealth management business and is upbeat of getting a bigger contribution to revenue for its current financial year ending March 31, 2013.
The four areas are product innovation, infrastructure, customer segment strategy and advisory support. He says in the last financial year, wealth management accounted for 20% of the bank's consumer banking revenue, reflecting a 60% growth from the previous year due to the growing appetite for certain products.
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