Barefoot Investor: Malaysia: Alliance Financial Group Bhd eyes18pc return on equity

Alliance Financial Group Bhd, a Malaysian lender part-owned by Singapore’s Temasek Holdings Pte Ltd, aims to increase return on equity to 18 percent, focusing on growth in consumer and small-business banking.

Alliance, the smallest among eight banks in the Southeast Asian nation, will offer wealth management products to lure rich clients and bolster services to a segment of corporate borrowers ignored by rivals, Sng Seow Wah, chief executive officer of its banking unit, said in an interview.

“There are market spots that are not well covered,” Sng said in Kuala Lumpur yesterday. “Big banks don’t look at the small companies.”

Sng, 53, took over the top job at Alliance Bank Malaysia Bhd in July last year, replacing Bridget Lai who resigned following an internal probe. Since his appointment, Alliance Financial has posted a 36 percent increase in net income to RM409.2 million (US$130 million) for the year ended March.

Alliance Financial’s return on equity, a measure of how well a company used reinvested earnings to generate additional income, was 13 percent last year, according to data compiled by Bloomberg. Sng said his target was to raise the ratio to 18 percent in five years.

By comparison, Malayan Banking Bhd, Malaysia’s biggest bank, had a return on equity of 15 percent for the year ended June 30, and CIMB Group Holdings Bhd, the nation’s second-biggest lender, was at 16 percent for the year ended December.

Takeover Unlikely

Shares of Alliance Financial have risen 11 percent this year, outperforming the benchmark FTSE Bursa Malaysia KLCI Index even as most Malaysian banks lost value during the period. The local stock gauge has dropped 5 percent this year. Alliance dropped 0.3 percent to RM3.38 at 10:05 a.m. in Kuala Lumpur.

Alliance Financial was among the likely Asian acquisition targets for Australian banks, analysts at Nomura Holdings Inc including Victor German wrote in a Sept. 15 report.

Sng said a merger and acquisition deal is unlikely to happen in the next three to five years because Malaysian rules that limit foreign ownership in banks at 30 percent would deter overseas buyers. Combining with another Malaysian lender “doesn’t make sense” either, he said. (Business Times)

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