1st Half FY2017 Analyst Briefing as at 30 September 2016

ANALYST BRIEFING1H FY2017

29 November 2016

Executive Summary Growth: Revenue and Profitability Effective Risk Management Key Results

Contents

Going Forward FY17: Priorities and Targets

2

1

Appendix - Financial Results: 2Q FY2017 1H FY2017

3

3

Revenue and Profitability

1

2

3

Efficient loans growth with improved Risk Adjusted Returns (“RAR”) Growing client based fee income Maintained cost to income ratio

Better-than-industry asset quality, credit cost contained Maintaining optimal funding mix Deposits grew faster than industry, q-o-q NIM maintained Sustainable capital ratios

Continued progress despite challenging economy

Effective Risk Management

Key Results Net profit after tax: +0.1% q-o-q to RM132.6 million Interim dividend of 8.5 sen (50% payout ratio)

2Q FY2017: Performance

a) Q-o-Q loan portfolio yields maintained at 5.18% (normalised basis)

b) Enhancing loan portfolio yields by: Improving loans mix Pricing for risk

c) Industry yield* contracted by 8 bps to 4.51%

Note:* based on the Average Lending Rates for Commercial Banks as per BNM Monthly Statistical Bulletin September 2016^ restated (including BA)

Growth:Revenue & Profitability

4

Efficient loans growth with focus on risk adjusted return

Loan Portfolio Yield

Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

5.08%

4.67% 4.66% 4.66% 4.62%4.51% 4.55% 4.60% 4.59% 4.51%

5.03% 5.08% 5.00% 5.06% 5.10% 5.13% 5.19%5.18%^ 5.18%

Alliance Bank Industry %

OPR impact: 10 bps

a) Improved loan origination mix: 1H FY2017 annualized loans growth:

Better risk adjusted return (“RAR”) loans: 13.8%

Lower RAR loans: -0.5%

b) Portfolio RAR continue to improve

1H FY2017 Loans

Growth RM (mil)

1H FY2017 Annualized

Loans Growth

-0.5%

SME & Commercial

Consumer Unsecured

Mortgage & Biz. Premises

Hire Purchase

Total

Better RAR loans

Lower RAR loans

13.8%Total RAR =2.10%

RAR = 0.75%

1H FY2016 Loans

Growth RM (mil) %

Note: Risk Adjusted Return: Net Interest Margin less (Direct Variable Cost + Business as Usual Credit Cost) ÷ Average Loan Balance

311

140

451

755

(132)

132

754

5

Efficient growth in better risk adjusted return loans

Q-o-Q improvement in portfolio RAR from 1.10% to 1.17%

Loans Growth YTD (April – September 2016)

Corporate

579

103

682

(205)

(135)

(66)

275


Note: Non-Interest Income in this Chart is inclusive of Islamic Banking client-based fee income

6

Growing client based fee income

Client Based Fee Income Trend

2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 1HFY16 1HFY17

11.0 12.4 11.0 14.9 14.0 22.9 28.8 4.8 5.5 5.6 5.1 5.5 11.0

10.6 15.6 14.2 15.7 17.3 16.2

30.1 33.4

18.5 17.4 16.7 17.6 18.3

32.8 35.8

18.4 24.3 21.2 22.1 23.7

37.9

45.9

68.3 73.8 70.2 77.0 77.7

134.7

154.6

Insurance, Banca & Unit Trust FeesBrokerage & Share Trading FeesFX SalesTrade Fees

a) 1HFY17 client based fee income up 14.8% y-o-y, with growth in:

Wealth Management fee: +16.4%

FX sales: +11.1%

Trade fees: +9.4%

Banking Services fees: +21.0%

b) 1QFY17 client based fee income up 0.9% q-o-q, with growth in Trade fees (+3.9%) and Banking Services fees (+7.2%)

= Wealth Management


RM mil


166.0 175.0 180.6 169.1 167.3

333.4 336.4

45.4%48.4%

51.2%46.5% 46.5% 46.9% 46.5%

OPEX CIR

a) Cost to income ratio at 46.5%, below industry average of 50.1%*

b) 1HFY17 operating expenses up 0.9% y-o-y thanks to cost discipline

c) Cost to income ratio will be maintained below 50% with continued cost control and selected franchise investment

7

Note: * Average cost to income ratio of local banking groups at June 2016

Maintained cost to income ratio

Operating Expenses Trend


RM mil

Sep-15 Sep-16

83.1% 84.4%

4.8% 1.8%8.7% 9.2%3.4% 4.6%

Other Liabilities

Shareholders' Funds

Deposits of banks and other FIs

Deposits from Customers

%

8

Maintaining optimal funding mix

Funding of Balance Sheet

+RM2.2B

Sub-Notes +RM600mCagamas +RM500m

EffectiveRisk Management

Sep-15 Sep-16

13.0 13.41.8 1.8

20.6 22.8

8.7 8.244.1 46.2

33.6% 32.9%Others

Fixed Deposits (FD)

Saving Deposits

Demand Deposits

CASA ratio

RM bil

Deposits Growth and CASA RatioOptimising funding mix with focus on customer based funding:

a) Growing customer deposits +4.9% y-o-y

b) Growing CASA balances: +2.8% y-o-y (CASA ratio at 32.9%)

c) Proportion of funding from customer deposits remained high (>80%)

d) Continue to maintain optimal funding mix, with +RM1.1 billion of recent Tier-2 Sub-Notes and Cagamas funding

%

a) +4.9% y-o-y customer deposits growth, faster than industry^ (1.3%*)

b) Loans to deposits ratio at 84.6% (industry*: 89.4%)

c) Positive funding gap at 1.92% between deposits and loans growth (industry: -2.87%*)

d) Q-o-Q drop in cost of funds (-5 bps) mainly due to lower interest on Fixed Deposits (FD)

e) GIM: -4 bps q-o-q due to base rate reduction following Overnight Policy Rate (OPR) cut in July

f) NIM: maintained q-o-q

9

Deposits grew faster than industry, q-o-q NIM maintained

Cost of Funds & Net Interest Margin Trend

1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17

2.66% 2.66% 2.74% 2.85% 2.77% 2.72%

2.16% 2.19% 2.15% 2.12% 2.22% 2.22%

4.67% 4.71% 4.74% 4.79% 4.79% 4.75%

Cost of Fund Net Interest Margin Gross Interest Margin

Oct 2015 - Sep 2016 AFG Group Banking System

Deposits Growth 4.94% 1.33%

Loans Growth 3.02% 4.20%

Difference(Funding Gap) 1.92% (2.87%)

Notes: ^ Based on Total Deposits in the Banking System * Based on BNM Monthly Statistical Bulletin September 2016: Liquidity in the Banking System


Better-than-industry asset quality

Gross Impaired Loansa) Better-than-industry asset quality despite slow down in mortgages and hire purchase loans:

Gross impaired loans ratio at 0.9% (industry: 1.6%)

Net impaired loans ratio at 0.5% (industry: 1.3%)

SME gross impaired loans ratio at 0.8% (industry: 2.6%*)

Loan loss coverage at 147.0%^

b) Restructured & Rescheduled loans:

Flow: -RM35.6 million q-o-q

Stock: RM85.8 million (0.2% of total loans)

c) Proactive actions:

Enhanced credit underwriting policies

Enhanced early warning systems

Strengthened collectionsFY2014 FY2015 FY2016 1HFY16 1HFY17

442.8380.7

487.9426.7

367.8

1.4%1.0%

1.3% 1.1% 0.9%

0.7% 0.6% 0.8% 0.7% 0.5%

Gross impaired loansGross impaired loan ratioNet impaired loan ratio

RM mil

Note: ^ Loan Loss Coverage is enhanced by Regulatory Reserve provision amounting to RM166.1 million (+45.2%)Industry: Based on the Banking System as per BNM Monthly Statistical Bulletin September 2016 (except indicated by * based on August 2016)

10


a) 1HFY2017: Annualized net credit cost normalised to 17.9bps

b) Continued reduction in recoveries:

FY2016: RM37.8 million

1HFY17: RM16.7 million

(annualized RM33.3 million)

11

Contained credit cost

Credit cost (excluding recoveries) RecoveriesNet credit cost (including recoveries)

22.8

-10.0

12.8

26.4

-8.5

17.9

FY2016 1HFY17 (Annualized)Basis points (bps)

Overall Credit Cost (bps)


a) Total Capital Ratio stabilised to 16.8%, after redemption of RM600 million Tier-2 Subordinated Notes on 8 April 2016.

b) Strong CET-1 ratio at 12.2%, after retained earnings and regulatory reserve provision^

c) Capital ratios to remain stable with focus on risk adjusted returns on loans and client based fee income

Capital Ratios(after proposed dividends)

CET 1 Capital Ratio

Tier 1 Capital Ratio

Total Capital Ratio

Alliance Financial Group 12.2% 12.2% 16.8%

Alliance Bank 11.3% 11.3% 15.4%

Mar-13 Mar-14 Mar-15 Mar-16 Sep-16

14.6% 13.7% 13.0%

17.4% 16.8%

Notes: ^ Regulatory Reserve provision amounting to RM166.1 million (CET1 impact: -0.5%)* Basel III regulatory minimum for 2016 includes capital conservation buffer amounting to 0.625%

12

Sustainable capital ratios

Total Capital Ratio (%)


Competitive ROE with Better Risk Adjusted Return strategy

a) Steady q-o-q performance despite challenging environment with Risk Adjusted Return strategy:

NPAT : +0.1% to RM132.6 million

ROE : 10.7%

b) Maintain ROE above the industry average

13

Net Profit After Tax and Return on Equity

Key Results

Note: Industry ROE is the average of local banks^ Average of each banks’ June 2015 and September 2015 quarters ROE


134.7 135.6 129.8 132.5 132.6

256.6 265.1

11.7% 11.6% 11.0% 11.0% 10.7%11.5% 10.9%

10.4% 10.1% 9.6% 9.3%10.7%^

NPATReturn on Equity (AFG)Return on Equity (Industry)

RM mil

Enhanced shareholder value, dividend payout ratio at 50% (1HFY17)

Key Results

a) Shareholder value (y-o-y): Earnings per share (EPS) : +0.6 sen Net assets per share : +29 sen

b) Dividends: First interim dividend of 8.5 sen per share Dividend payout ratio of 50%

c) Stable capital ratios support dividend policy

14

FY2014 # FY2015 FY2016 1HFY16 1HFY17 ^

114.3 136.9 122.0

122.0 131.6174.7 97.5 99.1

289.0 234.4 221.1

51% 45% 43%48% 50%

1st Interim 2nd Interim Dividend Payout RatioRM mil

Dividend Paid and Payout Ratio

Notes: # Excluding special dividend of 10.5 sen or Rm159.2 mil paid on 26 June 2014^ Including 1st interim dividend of 8.5 sen per share

Net Assets and Earnings per share

FY2014 FY2015 FY2016 1HFY16 1HFY17

2.69 2.90 3.13 2.98 3.27

37.1 34.8 34.216.8 17.4

Net Assets per share (RM) EPS (sen)RM

15

Revenue and Profitability

1

2

3

Efficient loans growth with improved Risk Adjusted Returns (“RAR”) Growing client based fee income Maintained cost to income ratio

Better-than-industry asset quality, credit cost contained Maintaining optimal funding mix Deposits grew faster than industry, q-o-q NIM maintained Sustainable capital ratios

Focus on sustainable profitability

Effective Risk Management

Key Results Net profit after tax: +0.1% q-o-q to RM132.6 million Interim dividend of 8.5 sen (50% payout ratio)

Summary


Contents


2

1


3

Going Forward

FY17: Priorities and Targets

17

Efficient asset growth: focus on better Risk Adjusted Return loans

Deposits growth faster than loans

Continue to strengthen risk management

Streamline key processes to improve efficiency

Joint collaboration between Lines of Business

Embark on transformation program

Deploy new innovative propositions

FY17 Priorities

Maximize Franchise Linkages2

Execution of New Strategy3

Optimization and Streamlining1

FY17 Management Guidance

Maintain NIM

Mid-to-high single digit loans growth

Cost to Income ratio <50%

Net credit cost 25-30 bps

ROE around 11%

Maintain dividend payout policy


Contents


2

1


3

Net profit after tax: RM132.6 million

Key Highlights Q-o-Q: Financial Performance

3QFY16 4QFY16 1QFY17 2QFY17

361.2 352.7 363.8 359.7

RM mil

Revenue


135.6 129.8 132.5 132.6

RM mil

Net Profit

Net Interest Income & Islamic Banking Income


175.0 180.6 169.1 167.3

48.4% 51.2% 46.5% 46.5%RM mil

Operating Expenses & CIR Ratio


4.70.2

19.3 16.8

RM mil

Credit Cost


279.0 272.4 279.4 282.7

RM mil

19

3Q FY16 4Q FY16 1Q FY17 2Q FY17

IA & CA 12.4 8.7 20.2 19.9Others 3.4 0.6 7.1 5.6Recovery (11.1) (9.1) (8.0) (8.7)


69.7 67.1 73.6 73.5

12.4 13.2 10.8 3.5 82.1 80.3 84.4 77.0

23.8% 23.8% 24.2% 22.6%

Client Based Non Client BasedNOII Ratio

Non Interest Income &NOII Ratio

RM mil

2Q FY2017:Income Statement

Income Statement 1QFY17RM mil

2QFY17RM mil

Q-o-Q ChangeBetter / (Worse)

RM mil %

Net Interest Income 212.1 204.22.7 1.0%

Islamic Net Financing Income 63.7 74.3

Islamic Non-Interest Income 3.6 4.2

(6.8) (7.7%)Non-Interest Income 84.4 77.0

Net Income * 363.8 359.7 (4.1) (1.1%)

Operating Expenses 169.1 167.3 1.8 1.0%

Pre-Provision Operating Profit 194.7 192.4 (2.3) (1.2%)

Net Credit Cost ^ 19.3 16.8 2.5 13.1%

Pre-tax profit 175.4 175.6 0.2 0.1%

Net Profit After Tax 132.5 132.6 0.1 0.1%

Net income declined by 1.1% q-o-q, due to:

+1.0% rise in net interest income (mainly ⁺impact of OPR cut, offset by RAR strategy)

-7.7% drop in non-interest income⁺ Client based fee income grew by RM0.7 million

or 0.9% q-o-q due to higher trade fees (+3.9%) and banking services fees (+7.2%)

Non client based non-interest income declined by RM7.5 million mainly due to lower treasury income from derivatives and foreign exchange, and lower dividend income

Operating expenses reduced by RM1.8 million or 1.0% q-o-q mainly due to lower personnel cost and marketing expenses

Lower credit cost due to lower individual assessment allowance and higher recoveries

20

Notes:* Revenue^ Allowance/ (Write back) for losses on loans & financing and other losses ⁺ Inclusive of Islamic Banking Income

1HFY2017 net profit after tax up 3.3%

Key Highlights Y-o-Y: Financial Performance

2QFY16 2QFY17 1HFY16 1HFY17

365.9 359.7

710.3 723.5

RM mil

Revenue


134.7 132.6256.6 265.1

RM mil

Net Profit

Net Interest Income & Islamic Banking Income


166.0 167.3

333.4 336.4

45.4% 46.5% 46.9% 46.5%RM mil

Operating Expenses & CIR Ratio


19.3 16.8

35.6 36.2

RM mil

Credit Cost


274.2 282.7

540.5 562.1

RM mil

21


65.3 73.5 129.3 147.1 26.4 3.5

40.5 14.3

91.7 77.0

169.8 161.4

25.9%22.6% 24.7% 23.4%

Client Based Non Client BasedNOII Ratio

Non Interest Income &NOII Ratio

RM mil

2Q FY16 2Q FY17 1H FY16 1H FY17

IA & CA 22.0 19.9 43.7 40.1Others 6.1 5.6 9.5 12.8Recovery (8.8) (8.7) (17.6) (16.7)

2Q FY2017:Income Statement

Income Statement 2QFY16RM mil

2QFY17RM mil

Y-o-Y ChangeBetter / (Worse)

RM mil %





Net Income * 365.9 359.7 (6.2) (1.7%)

Operating Expenses 166.0 167.3 (1.3 ) (0.8%)

Pre-Provision Operating Profit 199.9 192.4 (7.5) (3.8%)

Net Credit Cost ^ 19.3 16.8 2.5 12.7%

Pre-tax profit 180.6 175.6 (5.0) (2.8%)

Net Profit After Tax 134.7 132.6 (2.1) (1.5%)

22

Net income declined by 1.7% y-o-y, due to:



or 13.7% y-o-y due to higher wealth management fees (+23.3%), FX sales (+3.5%) and banking services fees (+29.4%)

Non client based non-interest income declined by RM22.9 million mainly due to lower treasury income from derivatives and foreign exchange

Operating expenses increased by RM1.3 million or 0.8% y-o-y mainly due to higher personnel cost

Lower credit cost due to lower individual assessment and collective assessment allowances on loans and financing


Income Statement 1HFY16RM mil

1HFY17RM mil

Y-o-Y ChangeBetter / (Worse)

RM mil %





Net Income * 710.3 723.5 13.2 1.9%

Operating Expenses 333.4 336.4 (3.0) (0.9%)

Pre-Provision Operating Profit 376.9 387.1 10.2 2.7%

Credit Cost ^ 35.6 36.2 (0.6) (1.3%)

Pre-tax profit 341.3 351.0 9.7 2.8%

Net Profit After Tax 256.6 265.1 8.5 3.3%

23

1H FY2017:Income Statement

Net income grew by 1.9% y-o-y, driven by:



or 14.8% y-o-y due to higher wealth management fees (+16.4%), FX sales (+11.1%), trade fees (+9.4%) and banking services fees (+21.0%)

Non client based non-interest income declined by RM26.1 million mainly due to lower treasury income from derivatives and foreign exchange

Operating expenses increased by RM3.0 million or 0.9% y-o-y mainly due to higher personnel cost and IT investment

Pre-provision operating profit improved by 2.7% y-o-y

Higher credit cost due to lower recoveries


Q-o-Q Summarised Balance Sheet

Balance Sheet Jun 16RM bil

Sep 16RM bil

Change Q-o-Q

RM bil %

Total Assets 54.5 54.8 0.3 0.6%

Treasury Assets * 9.6 9.5 (0.1) (1.3%)

Net Loans 38.1 38.8 0.7 1.7%

Customer Deposits 44.9 46.2 1.3 2.9%

CASA Deposits 14.8 15.2 0.4 3.2%

Shareholders’ Funds 4.9 5.1 0.2 3.5%

Net Loans Growth (y-o-y) 3.1% 3.1%^

Customer Deposit Growth (y-o-y) 2.3% 4.9%

Note: Industry comparison from BNM Monthly Statistical Bulletin as at September 2016* Treasury assets comprise financial assets (HFT, AFS & HTM), derivative financial assets & placements with Financial Institutions^ Gross loans growth (y-o-y) = 3.0% (q-o-q: 1.7%)

1.7% q-o-q net loans growth, with focus on better risk adjusted return loans namely SME, commercial and consumer unsecured lending

Better risk adjusted return loans grew at a 13.8% annualized rate, compared to a contraction of -0.5% of lower risk adjusted return loans

SME loans growth of +4.5% q-o-q

+2.9% q-o-q customer deposits growth, better than industry growth of 0.3%

CASA deposits increased at 3.2% q-o-q despite intensified market competition for deposits

Loan to deposit ratio at 84.6% (industry: 89.4%)

24

YTD Summarised Balance Sheet

Balance Sheet Mar 16RM bil

Sep 16RM bil

Change YTD

RM bil %

Total Assets 55.6 54.8 (0.8) (1.5%)

Treasury Assets * 10.2 9.5 (0.7) (6.2%)

Net Loans 38.4 38.8 0.4 0.9%


CASA Deposits 14.8 15.2 0.4 3.1%




Note: Industry comparison from BNM Monthly Statistical Bulletin as at September 2016* Treasury assets comprise financial assets (HFT, AFS & HTM), derivative financial assets & placements with Financial Institutions^ Gross loans growth (y-o-y) = 3.0% (q-o-q: gross loan growth 1.7%)

0.9% year-to-date (YTD) net loans growth, with focus on better risk adjusted return loans namely SME, commercial and consumer unsecured lending


SME loans growth of +3.4% YTD

+0.4% YTD customer deposits growth

CASA deposits increased at 3.1% YTD despite intensified market competition for deposits


25

Balance Sheet Sep 15RM bil

Sep 16RM bil

Change Y-o-Y

RM bil %

Total Assets 53.0 54.8 1.8 3.4%

Treasury Assets * 11.4 9.5 (1.9) (16.5%)

Net Loans 37.6 38.8 1.2 3.1%


CASA Deposits 14.8 15.2 0.4 2.8%




Note: Industry comparison from BNM Monthly Statistical Bulletin as at September 2016* Treasury assets comprise financial assets (HFT, AFS & HTM), derivative financial assets & placements with Financial Institutions^ Gross loans growth (y-o-y) = 3.0%

3.1% y-o-y net loans growth, with focus on better risk adjusted return loans namely SME, commercial and consumer unsecured lending


SME loans growth of +14.0% y-o-y

+4.9% y-o-y customer deposits growth, better than industry growth rate of 1.3%

CASA deposits increased at 2.8% y-o-y despite intensified market competition for deposits


26

Y-o-Y Summarised Balance Sheet

Key Financial Ratios

Financial Ratios 2QFY16 1QFY17 2QFY17 1HFY16 1HFY17

Shareholder Value

Return on Equity 11.7% 11.0% 10.7% 11.5% 10.9%

Earnings per Share 8.8sen 8.7sen 8.7sen 16.8sen 17.4sen

Net Assets per Share RM2.98 RM3.16 RM3.27 RM2.98 RM3.27

Efficiency

Net Interest Margin 2.19% 2.22% 2.22% 2.17% 2.22%

Non-Interest Income Ratio 25.9% 24.2% 22.6% 24.7% 23.4%

Cost to Income Ratio 45.4% 46.5% 46.5% 46.9% 46.5%

Balance Sheet Growth

Net Loans (RM bil) 37.6 38.1 38.8 37.6 38.8

Customer Deposits (RM bil) 44.1 44.9 46.2 44.1 46.2

Asset Quality

Gross Impaired Loans Ratio 1.1% 1.2% 0.9% 1.1% 0.9%

Net Impaired Loans Ratio 0.7% 0.7% 0.5% 0.7% 0.5%

Loan Loss Coverage Ratio ^ 92.7% 119.2%^ 147.0%^ 92.7% 147.0%^

Liquidity

CASA Ratio 33.6% 32.9% 32.9% 33.6% 32.9%

Loan to Deposit Ratio 86.2% 85.7% 84.6% 86.2% 84.6%

Loan to Fund Ratio 85.0% 82.5% 81.5% 82.5% 81.5%

Capital

Common Equity Tier 1 Capital Ratio 11.7% 11.7% 12.2% 11.7% 12.2%

Tier 1 Capital Ratio 11.7% 11.7% 12.2% 11.7% 12.2%

Total Capital Ratio 13.6% 16.3% 16.8% 13.6% 16.8%Note: ^ Loan Loss Coverage includes Regulatory Reserve provision; excluding Regulatory Reserve, 101.9% at 2QFY17 or 1HFY17 (vs 83.9% at 1QFY17)Loan to Fund Ratio is based on Funds comprising Customer Deposits and all debt instruments (such as senior debt, Cagamas and subordinated debt) 27

Alliance Financial Group31th Floor, Menara Multi-PurposeCapital SquareNo. 8, Jalan Munshi Abdullah50100 Kuala Lumpur, MalaysiaTel: (6)03-2604 3333www.alliancefg.com/quarterlyresults

THANK YOU

Disclaimer: This presentation has been prepared by Alliance Financial Group (the “Company”) for information purposes only and does not purport to contain all the information that may be required to evaluate the Company or its financial position. No representation or warranty, expressed or implied, is given by or on behalf of the Company as to the accuracy or completeness of the information or opinions contained in this presentation.

This presentation does not constitute or form part of an offer, solicitation or invitation of any offer, to buy or subscribe for any securities, nor should it or any part of it form the basis of, or be relied in any connection with, any contract, investment decision or commitment whatsoever.

The Company does not accept any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith.

For further information, please contact: Investor RelationsEmail: [email protected]

1st Half FY2017 Analyst Briefing as at 30 September 2016

Investor Relations

Transcript of 1st Half FY2017 Analyst Briefing as at 30 September 2016