Plenty of prospects for Affin Bank from Sarawak deal

KUCHING (Sept 30): The recent acquisition of a substantial stake in Affin Bank by the Sarawak state government positions the bank to significantly strengthen its presence in the region.

With ongoing developments in Sarawak, TA Securities Holdings Bhd (TA Research) was optimistic about the state’s economic prospects, as it is poised to become one of Malaysia’s key economic catalysts.

As the financing vehicle for the Sarawak government, it believed Affin Bank was ideally situated to capitalise on the state’s growth potential.

“The banking group is expected to benefit across multiple business segments, such as advisory roles, loan growth opportunities stemming from SMEs, and various infrastructure and green energy projects currently being prioritised by the state,” it commented today.

“We also see opportunities to grow a more substantial CASA deposit base from the potential move in salaries of the Sarawak state’s civil servants.

“With the anticipated increase in salaries for Sarawak’s civil servants, particularly through the upcoming revamp of the Public Service Remuneration System (SSPA), which will raise the minimum monthly income to RM2,000, we foresee a substantial opportunity to enhance the bank’s CASA deposit base.”

Collectively, TA Research said these factors could support management’s target of achieving eight per cent loan growth for FY24 and increasing the net interest margin (NIM) to 1.6 per cent from 1.4 per cent.

The research firm also anticipated growth opportunities for Affin Bank’s wealth management division, driven by Sarawak’s robust economic outlook.

“We believe the influx of investments and affluent foreign residents presents a valuable opportunity for Affin Bank to enhance its wealth management services.”

It cited the Sarawak-Malaysia My Second Home Programme (MM2H) emerging as an attractive option for foreign investors and retirees seeking affordable second-home alternatives.

According to the Sarawak Tourism Ministry, the program is expected to attract 650 applicants in 2024, a substantial increase from the historical average of approximately 148 approved applicants per year since its inception in 2007.

The Sarawak-MM2H initiative has successfully drawn “high value” retirees, with a total of 2,593 participants approved since its launch in 2007.

Notably, most of the current participants hail from China (373), followed by the UK (342), Taiwan (258), Hong Kong (251), the US (198), and Singapore (194).

“While the outlook for growth is promising, we believe Affin Bank may face near-term cost pressures as it seeks to strengthen its digital capabilities and expand its physical presence in Sarawak,” TA Research said.

“The bank aims to reduce its cost-to-income ratio from 71.6 per cent in FY23 to 64 per cent, which will require careful management of resources and strategic investment in technology and branch infrastructure.”