KUALA LUMPUR: Alliance Bank Bhd is poised to post year-on-year (YoY) earnings growth next quarter, despite flattish sequentially, backed mainly by better total income growth and lower loan loss provisions.
Hong Leong Investment Bank (HLIB) Research noted the bank's net interest margin (NIM) compressed four basis points (bp) sequentially in the third quarter ended Dec 31, 2023 (3QFY24) due to the typical year-end competition for fixed deposits, which drove up funding costs.
"However, 4QFY24 NIM is seen to be broadly stable as seasonal fixed deposits contest eases and there is increasing focus to grow its higher yielding loan segments like SME and commercial.
"Overall, management maintains its full-year FY24 NIM contraction guidance of 14–19 bp versus our forecast of -15 bp," it said.
It added that although the 12.9 per cent YoY loan growth may taper into 4QFY24, it could likely land at the upper end of management FY24 guidance of 8–10 per cent, topping the firm's conservative six per cent estimate.
"Separately, we think Alliance is able to keep its sequential non-interest income (NOII) showing steady, premised on
good sustained forex sales and trade fees, together with healthy corporate banking fees."
It said the better topline outlook coupled with benign cost pressures should help to blunt the impact and result in flattish sequential earnings.
That said, Alliance has a high probability of posting YoY profit growth, backed by total income expansion and lower loan loss provisions.
Overall, the gross impaired loans (GIL) ratio could further improve on a quarterly basis, supported by recoveries and an expanding credit base.
"In any case, we are comforted that the bank's loan loss coverage (LLC) stood at less than 90 per cent, higher than the pre-pandemic level of 70–80 per cent while the percentage of 30+ days past due (dpd) loans has stayed relatively stable for two consecutive quarters.
It retained a "buy" call on the stock with a higher target price of RM4.10 from RM3.95 previously.