KUALA LUMPUR (March 26): Affin Bank Bhd (KL:AFFIN) may come under investors' microscope for its weakening capital position amid above-industry loan growth.

The common equity tier 1 ratio — a measure of a bank’s strength based on the highest quality of regulatory capital — at Affin could slip by 90 basis points by the end of 2025, according to RHB Investment Bank’s estimates. Even without a dividend payout, the ratio also known as CET-1 would still be at the low end, the house noted.

“We think Affin’s capital position may attract investors’ scrutiny,” the house said. However, raising equity could be challenging for Affin given tough market conditions and its subdued mid-single-digit return on equity, it flagged in a research note.

The report comes on the heels of a sharp selldown in shares of Alliance Bank Malaysia Bhd (KL:ABMB) after the bank surprised investors and analysts with its planned rights issue to raise RM600 million.

While analysts said the proposal is crucial as Alliance Bank has one of the weakest capital positions among its peers, investors baulked at potential dilution to earnings per share from an increase in share base. The selloff wiped out all of the stock’s gain since the start of 2025.

However, CET-1 ratios across the sector and at the system level are “generally supportive” of business growth and dividends without further need for capital-raising exercises, RHB said. The CET-1 ratio at the domestic banking system was 14.3% at the end of 2024.

Affin’s capital levels peaked in 2022 following the disposal of its asset management arm but the ratio has fallen since then to about 13% at the end of last year amid strong loan growth. The bank has also announced an ambitious loan growth target of 12% for 2025.

On top of profits from usual business, Affin had previously disclosed that it was exploring a potential transition to the internal ratings-based (IRB) approach to assess its own credit risk and calculate the regulatory capital required, RHB said.

The approach could raise Affin’s CET-1 ratio by over two percentage points, according to RHB’s estimates, though the bank may have to withhold dividend payments for longer to preserve its capital position as the adoption will take time.

A bigger boost to capital ratios could come from a reform on credit risk-weighted assets to Basel III, a set of international regulations for banks, RHB said, citing Bank Negara Malaysia’s guidance for about a 50-basis-point boost to total capital ratio for domestic commercial banks.

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