KUALA LUMPUR (Nov 15): Affin Islamic Bank Bhd is eyeing a mutually beneficial relationship with small and medium enterprises (SMEs) — with Affin Islamic Bank being hungry to grow its loans while many SMEs are still facing challenges to obtain funding in a tough economic environment.

"We want to push the growth of Affin Islamic. If you look at Affin Islamic, [it] grows at a compounded rate of 16%-17% year-on-year (y-o-y), which is very positive for us. We are strong believers in Islamic banking and we are pleased that customers have gravitated towards Affin Islamic banking.

"So we are pushing our retail and SME businesses into Islamic banking. We have more offerings for retail customers as well as SME customers," said Affin Bank Bhd president and group chief executive officer Datuk Wan Razly Abdullah Wan Ali after chairing the group's extraordinary general meeting to approve the proposed special dividend payout of 18.09 sen per share, amounting to RM400.21 million.

Shareholders unanimously voted to approve the single-tier special dividend following the divestment of a 63% stake the group owned in Affin Hwang Asset Management Bhd completed on July 29.

"We are expecting to grow high single digits in the SME space. SMEs in Malaysia are facing a tough time with high cost inflation and OPR (overnight policy rate) hikes that have impacted their businesses. We will continue to bridge businesses that have financial gaps," he added.

Wan Razly Abdullah said currently, Affin Islamic Bank contributes 44.5% to the group's contribution, adding that it is poised for stronger growth in the future.

In the first half of financial year 2022 (1HFY22), Affin Islamic Bank's contribution to the group's profit before tax (PBT) rose by 70.5% to RM147.9 million due to financing growth and lower impairment allowances.

Its financing grew 18.6% y-o-y, while it made a significant improvement in gross impaired financing to 0.98% in 1HFY22, compared with 1.55% in 1HFY21.

"We will follow the appetite of the customers. We will not impose ourselves on the customers. We let them choose the best option. Some of our key products are in Islamic banking such as personal financing, mortgages and credit cards. We aim to grow in all those areas," said Wan Razly Abdullah.

The bank allocated some RM150 million from the disposal gain of RM1 billion to propel the growth of its Islamic bank.

Affin Hwang Investment Bank Bhd accounted for 7.6%, or RM31 million, of the group's PBT in 1HFY22, and the main bank contributed 31.9%, or RM130.2 million.

As a group, Affin Bank's loans grew by 15% y-o-y in the second quarter of FY22.

Community banking still dominated its loan growth with some RM32.5 billion disbursed in the space. Meanwhile, corporate loans were worth RM17.3 billion while enterprise banking accounted for RM5.6 billion in 1HFY22.

Affin Islamic Bank is one of the smaller players in the Islamic financing space in Malaysia with assets of RM31.37 billion as of June 30, 2022.

In comparison, Maybank Islamic Bhd's asset as of June 30, 2022 stood at RM272.55 billion, while Bank Islam Malaysia Bhd's total assets for the same period stood at RM83 billion.

Wan Razly Abdullah added that the bank aims to grow its current account savings account (CASA) to 23% or approximately RM14 billion for the full FY22.

For 1HFY22, the group's CASA stood at RM13.85 billion compared with RM11.9 billion a year ago.

"For us to extract value, we need bigger [CASA] growth. We are a low CASA bank striving to be a higher CASA bank. The CASA target we [have set is 30%]. Today we are at 21%. We want to push our CASA [up by another nine percentage points]. That is approximately RM5 billion growth in CASA every year," he added.

He added that although growing CASA is typically a challenge for banks operating in a higher inflation environment, good services and strong digital propositions such as mobile app and internet banking will continue to attract customers.

Wan Razly Abdullah also noted that the bank is expected to leverage fee-based income opportunities in wealth management, investment banking, and insurance with the launch of its mobile banking app that will continue to make significant contributions to its CASA.

"We are now focused on finding ways to leverage [fee-based income] businesses, such as getting customers to do forex and wealth and insurance with Affin. This will propel us towards strong revenue growth," he added.

When mobile banking started to be rolled out, adoption rates skyrocketed among customers, although Affin Bank was among the few banks that delayed their digital integration.

But there are still opportunities, said Wan Razly Abdullah, for Affin Bank which has set aside some RM300 million to grow its mobile banking app that is scheduled to be launched soon.

The group has engaged with industry-leading mobile app vendors and providers for the delivery of the system.

Last November, the bank rolled out mobile app A1addin, which it hopes to build on further for the digital-savvy generation.

However, this raises the question of whether the bank may close branches down the line as more customers embrace its digital solutions.

"Today we have about 5,300 staff strength and we will be keeping at the same level. What we do want to see is the enhancement in productivity. If you look at our productivity numbers, it has been on the increase.

"At this point, we are adopting a hybrid business model. We believe in the interaction between the digital space and physical space. Our branch is very much functional for assistance from customers who may have trouble with the apps or transactions," he said.

The group aims to grow its digital customer base to 1.4 million by 2025 with 68 million transactions under the bank's A25 transformation plan.

"We are very aggressive in what we think the mobile app can do. We obviously will have to go through several versions of it. Once we have our app out there, we can cross-sell all our products there. This helps to increase our CASA too," he added.