This article first appeared in The Edge Malaysia Weekly on December 2, 2024 - December 8, 2024
NEWLY backed by Sarawak as its largest shareholder, Affin Bank Bhd (KL:AFFIN) — the second smallest of the country’s eight banking groups by assets — is seeking opportunities to grow bigger via acquisitions.
Sources say the bank is already on the hunt for opportunities to acquire complementary or related businesses, which could include insurance, takaful or asset management. It is also open to the possibility of a merger with rival lenders.
“The bank is gearing to scale up,” a source familiar with the bank’s plans tells The Edge.
Affin president and group CEO Datuk Wan Razly Abdullah Wan Ali could not immediately be reached for comment.
Interestingly, Affin had back in July 2022 divested its 63% stake in asset management firm, Affin Hwang Asset Management Bhd (AHAM) — then the country’s third-largest asset manager — to private-equity group CVC Capital Partners for a solid RM1.42 billion.
The offer from CVC came when Affin was in urgent need of capital to fund its fast-growing Islamic banking business.
That year, Affin also partially divested its stakes in its life and general insurance businesses to Italian insurer Generali. It is now a 30% joint-venture partner with Generali in those businesses, but does not own a takaful business.
Sarawak raised its total interest in Affin to 31.25%, from 4.81%, after having completed a share transfer just last Wednesday (Nov 27), Affin announced that day. The bank’s major shareholders the Armed Forces Fund Board (LTAT) and Boustead Holdings Bhd had divested a roughly 26% stake to the state’s SG Assetfin Holdings Sdn Bhd.
SG Assetfin is a wholly-owned special-purpose vehicle of State Financial Secretary Sarawak.
Following the exercise, LTAT’s shareholding in Affin was reduced to 22.01%, from 28.88% a month earlier, and Boustead — which also sold some 12.43 million shares on the open market last week — is no longer a shareholder. It previously held a 20.08% stake.
Hong Kong-based Bank of East Asia remains as Affin’s second-largest shareholder, with a 23.93% stake.
It is understood that the next step is for Sarawak to have board representation. According to sources, the state aims to have two board seats. Affin’s 11-member board is led by chairman Datuk Agil Natt.
There is strong expectation among stakeholders that having Sarawak as Affin’s biggest shareholder will allow the bank to participate in the state’s ambitious growth plans — the question is, how soon and to what extent?
According to sources, the state has placed a deposit of about RM1 billion in Affin, with more expected to come later — a move that will boost the bank’s current account and savings account (CASA) and go some way in helping the bank arrest a downward trend in net interest margin (NIM).
CIMB Securities, in a Sept 27 report, says it is assuming new CASA potential of at least RM4 billion from Sarawak in the bank’s financial year ending Dec 31, 2025 (FY2025). “This should correspondingly allow the release of more expensive fixed deposits,” it said.
Early retirement scheme
In September, Affin Bank launched an early retirement scheme, under which employees over the age of 50 can apply to retire if they wish, subject to the acceptance of the bank, according to bank staff.
It is understood that the move, which will result in one-off costs for the bank, is ultimately aimed at eventually bringing down the bank’s escalating cost-to-income ratio (CIR) and improving productivity.
Sources say Affin, which has some 5,600 employees, hopes to reduce staff count by about 200 under the first phase of the year-long programme.
Last week, Affin reported a third-quarter net profit of RM145 million, a strong 45% year-on-year increase.
However, it cut some of its key financial expectations for FY2024 to more realistic levels. For example, it now guides for a profit before tax (PBT) of RM750 million for the full year, versus RM1 billion before.
Return on equity (ROE) is expected to come in at 5% instead of 7%, while NIM for the year is expected to come in at around 1.4%, instead of 1.6%. It also guided for CIR to come in at 74%, against earlier expectations of 64%. Affin’s 9MFY2024 PBT stood at RM494.7 million, ROE was 4.4%, NIM was 1.33% and CIR, 74.6%.
Bloomberg data shows that only one analyst has a “buy” call on the stock, while four have a “hold” and six, a “sell”. The average 12-month target price was RM2.80. The stock has gained 43.1% this year to close at RM2.91 on Nov 29, for a market value of RM6.98 billion.
Sarawak had announced on Sept 27 that SG Assetfin would be acquiring 634.7 million Affin shares, or a 26% stake, from LTAT and Boustead, but it did not reveal at what price.
According to Bloomberg data, 647.13 million shares, or a 26.96% stake, were traded off market last Monday (Nov 25) in eight tranches for RM1.78 billion. They were sold at between RM2.46 and RM2.84 each, representing a discount of between 17% and 4.05% over Affin’s closing price of RM2.96 on the open market that day.
“The bank’s medium-term prospects are encouraging, in our view, as Sarawak’s entry as a shareholder could improve liquidity and revenue opportunities for the bank, with deposits growth already picking up, but loans growth has yet to pick up pace,” Nomura Research says in a Nov 24 report. It had a “neutral” call on the stock and lowered its target price by 50 sen to RM3.20.”
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