KUALA LUMPUR (Nov 17): Affin Bank Bhd posted a net profit of RM100.45 million for the third quarter ended Sept 30, 2023 (3QFY2023), compared with RM872.37 million a year ago. 

The big earnings contraction was due mainly to the one-off gain of RM1.06 billion from the divestment of its asset management business a year ago. 

It is worth noting that the hefty divestment gain lifted the banking group from a net loss from continuing operations amounting RM193.5 million to a net profit of RM872.37 million. The group’s net loss was weighed down by allowances for credit impairment losses of RM233.54 million in the previous corresponding quarter. 

The allowances for credit losses were much lower in 3QFY2023 at RM26.42 million. 

Nonetheless, the banking group pointed out in its latest quarter result release that its earnings were impacted by net interest margin (NIM) compression due to elevated cost of funds.

Interest expenses climbed 83% or RM231.6 million to RM510.3 million in the quarter under review, from RM278.7 million in 3QFY2022. Consequently, its net interest income shrunk to RM169.4 million from RM266.48 million a year ago. 

The group’s net income, however, dropped by merely 6.3% to RM500.44 million in 3QFY2023 against RM534.48 million previously as the impact of higher interest expenses was cushioned by net gain on financial instruments plus other income. 

Earnings per share from continuing operations came in at 4.38 sen compared with loss per share of 8.99 sen a year ago, according to the bank in a filing with Bursa Malaysia on Friday.

For the nine-month period ended Sept 30, 2023 (9MFY2023), Affin Bank’s net profit fell to RM362.66 million, from RM1.16 billion in the previous corresponding period

Excluding the one-off divestment gain, the banking group’s net profit would have been RM61.13 million a year ago.

Interest income came in higher at RM1.934 billion in 9MFY2023, up from RM1.474 billion a year earlier. However, the leap on its interest expenses was even bigger, soaring to RM1.328 billion from RM719.6 million previously.

Net interest income for 9MFY2023 stood at RM605.6 million, a decrease of RM150.5 million or 19.9% from RM755.2 million a year ago, mainly due to NIM compression.

Meanwhile, its income from Islamic banking contracted to RM444.28 million against RM503.56 million a year ago.

Non-interest income for the period was RM449.6 million, an increase of RM220.5 million or 96.2% from RM229.1 million registered in the previous corresponding period, excluding sales proceeds from the disposal of the asset management business.

Affin Bank recorded a slight decrease in operating expenses to RM1.02 billion for 9MFY2023, compared with RM1.07 billion in the previous year. The cost-to-income ratio was 68.1%, a slight increase from 63.24% previously.

As of Sept 30, 2023, its gross impaired loan ratio recorded an improvement to 1.84%, compared with 1.91% a year ago.

Affin Bank president and group chief executive officer Datuk Wan Razly Abdullah said 2023 had been challenging amid margin compression due to elevated cost of funds led by the US Federal Reserve (Fed).

"Globally, all banks are experiencing increased deposit costs. Capital markets are beginning to price in an inverted yield curve, with expectations of a pause in monetary policy, leading to an aggressive cut in the Fed's interest rates in 2024," he said.

Wan Razly added that the group had made progress in its current account, savings account (CASA) strategy, which had grown 21.4% year-on-year to RM16.6 billion, and the strategy will be powered by the launch of the new AffinAlways mobile app. These developments are aimed at countering global challenges by bolstering CASA and staying on track with the group's long-term A25 transformation plan.

He noted that the group had issued the second additional Tier 1 capital and the first Tier 2 issuance for Affin Islamic Bank for the year in October.

"These issuances were well received, with oversubscriptions of more than 2.1 times and 3.7 times respectively. This success, amid the current volatile credit market, underscores the group's robust reputation and continued trust from investors," he said.

At Friday's closing bell, shares in Affin Bank was traded at RM2.01, valuing the group at RM4.71 billion. The stock rebounded from a low of RM1.76 in June and hit a high of RM2.17 in September.