Can Alliance Bank keep up its strong growth momentum?

As at 9MFY2025, loans grew by 14.2% year on year (y-o-y) - compared with the industry average of about 5.5% - while its net profit rose 7.9% to RM553.23 million ($166.5 million). In FY2024, loans expanded by 13.6% (versus the industry's 6%) while net profit grew 1.9% to an all-time high of RM690.5 million.

Across most measures, Alliance Bank - the smallest of the country's eight banking groups by asset size and the seventh largest by market capitalisation - is in a good place at the halfway point of its four-year Acceler8 2027 strategy, which culminates in FY2027.

But the macro landscape has changed in recent months, with global uncertainties over the US' reciprocal tariffs and a trade war between the US and China threatening to slow down Malaysia's economic growth. This gives rise to the question as to whether the lender will be able to keep up its strong growth momentum in the remaining two years of its strategic plan.

In an interview with The Edge, Alliance Bank group CEO Kellee Kam points out that although things are still fluid on the tariff front, Malaysia faces the challenge from a position of strength.
"Malaysia has a fair amount of both monetary and fiscal levers to be able to manage it, I believe. So, from a banking perspective, our view is that it is a still a conducive market for banking growth," says Kam, who took the helm in September 2022.

See also: Malaysia rate cut bets mount as tariff shock dims growth outlook

"Even if there was a slowdown in gross domestic product growth [this year], we would still be in the mid-fours [in terms of GDP growth percentage] and that is still a pretty strong place to be, relative to where the region is," he says.

Malaysia faces a 24% levy in July for goods that it exports to the US, unless it manages to negotiate a better deal before then.

Given Alliance Bank's strong focus on SMEs, many wonder about the impact the tariffs may have on its business. According to Kam, the lender's exposure to SME customers who are exporters is "not significant".

See also: Malaysia refutes US claim on tariffs, doesn’t expect recession

"Our portfolio, interestingly enough, is largely domestic driven. Having said that, we've got to be conscious of the way supply chains work. [The customers] may not be exporters, but importers that import from someone else [that's affected], or they may be selling [products] onshore for completion for export.

"We now have a separate team that we've formed that keeps an eye on the changing impacts on all our portfolios and our business, as things develop [on the tariff front]," he says.

Kam believes Alliance Bank can still manage higher-than-industry loan growth in FY2026. "I think you would probably see us at the 8% to 10% mark. We believe that is still going to be something that we can sustain," he says. "We acknowledge that there are global [uncertainties], but there are a lot of domestic drivers that are still very positive to loan growth. And there are areas in which investments have already been committed. The data centre story is still relevant. The Johor-Singapore [Special Economic Zone] story, that's still very relevant. And so is the government's NETR (National Energy Transition Roadmap) programme investments. Those, I believe, will still be the drivers."

Alliance Bank's key targets that it aims to achieve by FY2027 under the Acceler8 plan are to be in the top quartile in terms of return on equity, which means an ROE of about 11%; a cost-to-income ratio (CIR) of about 45%; and sustaining above-industry loan growth of 8% to 10%. For now, Kam sees no need to revise these targets.

As at 9MFY2025, the group's ROE stood at 10.2% on an annualised basis, while CIR was at 46.8%.

Kam is pleased that the group is on track with its plans. "It's about doing simple things, but executed right. I think we've shown that we can execute well on growing across our portfolio.

"Prior to the Covid-19 pandemic, the three-year compound [annual] growth rate for our loans was only about 3%. We are now doing close to 10%. As at 9MFY2025, we were doing 14.2% y-o-y growth.

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"Commercial and SME, which is our traditional stronghold, saw loans grow 15% y-o-y in the nine months. Consumer, which used to grow in the low single digits, did 14%. And corporate, which was losing market share over the last five or six years, grew close to 14%. They're all showing double-digit growth," he highlights.

This strong loan growth was achieved without the bank having to drop pricing or increasing its levels of risk, Kam says. Its net interest margin (NIM), a key measure of profitability that indicates what a bank earns in interest on loans against what it pays out to depositors, remains the highest among Malaysian lenders, at 2.46% as at 9MFY2025.

Its gross impaired loan (GIL) ratio - a measure of asset quality - improved to 1.97% as at end-December 2024 from 2.33% a year earlier.

Rights issue to fund growth while sun shines
The group's recently proposed rights issue to raise fresh capital of RM600 million is to enable it to keep growing at the current pace without further running down its Common Equity Tier-1 (CET-1) ratio.

"We took a look at future growth and if we were to continue at this level, it would keep diluting our capital ratio," Kam says. Its CET-1 ratio, a key measure of capital strength, at 12.4%, was already the lowest in the industry.

"We could slow down our growth, but we didn't think it would be the right thing to do from a business or shareholder perspective. When conditions are right for you to grow, you should. To use farming analogy, when the sun is out in summer, you plant; you don't plant during winter. We saw the country doing better, so slowing down was not the right thing to do.

"The other thing we could have done was a [private] placement of shares, right? But then, we asked ourselves, is it not right to give our existing shareholders who have supported us through the years the first shot at participating, at a discount? This is the first time ever in Alliance Bank's history that it is [tapping shareholders] for capital.

"So, we went for the rights issue because we believe there's a good balance to allow our shareholders to participate in the growth of the company. And we've already shown that we can grow the franchise," Kam shares. The group has been paying dividends at a payout ratio of 50% in the three years since FY2022.

Be that as it may, Alliance Bank took many by surprise when it announced the planned cash call on March 21. The stock fell by 8.4% to close at RM4.66 the next trading day - its steepest decline in a single day since March 2020 - on concerns of dilution. It has since declined further, exacerbated by investor concerns about tariff uncertainties. It closed at RM4.36 on April 25 for a market value of RM6.75 billion.

Up until March 21 (the day it announced the rights issue), the stock had gained 44.6% over a one-year period. Its highest close in that period was RM5.38 on Feb 14.

Kam says the plan is to try to have the rights issuance process completed by July, subject to obtaining the necessary approvals.

Alliance Bank's biggest shareholder Vertical Theme (VT), which has a 29.06% stake, has given an undertaking that it will subscribe in full for its entitlement under the exercise. The lender's other key shareholder is the Employees Provident Fund, which had a 9.24% stake as at April 21.

Lee Thiam Wah, the founder of retail chain 99 Speedmart, holds a 4.98% stake through his investment vehicle Global Success Network Sdn Bhd.

With VT set to take up its portion of the rights issue, many are wondering whether Singapore-based hotel and property tycoon Ong Beng Seng will be allowed by Bank Negara Malaysia to remain a shareholder of the bank.

Ong - one of three individuals who own Langkah Bahagia Sdn Bhd, a 51% shareholder of VT - reportedly intends to plead guilty in a court case in Singapore linked to former transport minister S Iswaran's corruption probe. Bank Negara has strict requirements for substantial and major shareholders of banks, including that they must not be the subject of any criminal proceedings or have been convicted of any offence involving dishonesty, fraud or other financial crimes.

"Honestly, I don't know enough to comment, and that's the truth," Kam says when asked if Ong will remain a shareholder. Industry sources say the matter is one for VT and Bank Negara to resolve, and does not involve the bank.

'No need for M&A'
Recent news reports state that Singapore's biggest bank DBS Group Holding is keen on taking up VT's 29.06% stake in Alliance Bank. Asked to comment, Kam says he is not in the know as that would be a shareholder matter. Both banks are backed by Singapore state investor Temasek Holdings.

VT is 49%-held by Duxton Investments Pte Ltd, which is ultimately owned by Temasek. DBS is 31.91% owned by Temasek.

"We do talk to DBS on business transactions and so on, but at an arm's length, as a partner bank [for potential cross-border business]," Kam says. But there has been no discussion with it on the matter of mergers and acquisitions (M&A), he adds.

According to a Bloomberg report on Jan 16, VT was planning to seek approval "in the coming weeks" from Bank Negara to start talks about selling its stake in Alliance Bank. The news wire, citing people familiar with the development, said VT was considering selling the roughly 29% stake to DBS.

It went on to say that if a deal goes through, DBS may consider raising its stake in the Malaysian bank to up to 49% via a voluntary partial general offer.

Meanwhile, Kam says Alliance Bank's strong growth in recent years shows that it does not need to rely on M&A for growth.

"I've always said that we don't need [it]. I think we've shown that it's actually okay to continue as a standalone bank and drive our strategy the way it's going. So, for us, internally, M&A is not something we consider," he says.

Bloomberg data shows that of 16 analysts that track the stock, nine have a "hold" call on it while six have a "buy" and one, a "sell".

"We initiate coverage of Alliance Bank with a 'neutral' rating as we believe that the positives such as the potential for faster-than-industry loan growth, attractive dividend yield, and the group's SME strength are offset by near-term risks arising from tariff-linked economic slowdown, upcoming dilution due to the rights issue, and NIM pressure from the consumer book," Nomura Research says in an April 22 report.

We can stand alone, Alliance Bank's chief says amid market talk on M&A

Being a small lender, Alliance Bank Malaysia is often speculated to want to eventually go down the merger and acquisition (M&A) route to grow and compete better with rivals.
The bank has, however, proven that it grows perfectly well on its own, size notwithstanding.

"I've always said that we don't need M&A. And now, we've shown that we don't. We've literally grown 2 times the industry for the last two years. Our revenue is up in the double digits. I'd say it would be hard for you to find a Malaysia-focused bank that has done that as well," group CEO Kellee Kam tells The Edge in an interview.

Be that as it may, some of its shareholders may think differently. There continues to be market talk about Singapore lender DBS Group Holdings being keen on taking up Vertical Theme's (VT) 29.06% stake in Alliance Bank.

According to a Bloomberg report on Jan 16, VT was planning to seek approval from Bank Negara Malaysia to start talks about selling its stake in Alliance Bank. The newswire, citing people familiar with the development, said VT was considering selling the roughly 29% stake to DBS. A pertinent question, though, is whether Bank Negara will allow it to do so.

VT, the bank's single largest shareholder, and DBS are both backed by Singapore state investor Temasek Holdings.

Kam declines to comment on the matter, saying he would not know as it was a shareholders' matter.

On the bank's part, it will continue to focus on building value, he says. "Building value is independent of whether there is an M&A or not. In fact, the better value you get, the better it is for us. We're already 50% up in terms of market capitalisation from where we used to be, which means that if we ever did want to do any M&A, we are 50% more valuable than before. And what's driving that is the fundamental growth in our business. So, the fundamental logic of growing the business becomes, still, our prime motivation," he explains.

In the interview, Kam, who is 52 this year, talks about a range of issues, from the US's reciprocal tariffs to the rights issue and the bank's upcoming move to its new corporate headquarters in Jalan Ampang, Kuala Lumpur.

"Building value is independent of whether there is an M&A or not," says Kellee Kam, group CEO of Alliance Bank / Photo: Patrick Goh of The Edge Malaysia

Below are extracts from the interview.

The Edge: You mentioned that you were looking forward to a pretty decent FY2026, and then the tariff issue came about in March. What's the thinking now?

Kellee Kam: It's still fluid, so it's still early days and you saw how quickly things evolved. I was kidding with the team during the first week that I would go to bed with one view and wake up the next day and find out that everything has changed. It went from an extreme tariff level, down to exemptions for 90 days, down to a little bit of mix-and-match throughout the portfolio.

As it stands now, are you expecting the OPR (overnight policy rate) to be cut at all this year?
I think the market is beginning to see the possibility of [a cut by Bank Negara]. Our view for now is that the OPR will stay at 3% for the year.

You're at the midway point of the Acceler8 2027 strategy and have grown loans strongly. Can you keep up those kind of numbers given the current environment with tariff and trade uncertainties, or are we going to start seeing some tapering off now in terms of growth?
I think in the near term, we can. Being a smaller bank and going into different [regions apart from the central region], that brings our loan growth up. So, if you were not large in Penang in the past, as you start to grow, those are all incremental stuff. If we weren't that active in Sarawak, all incremental stuff pushes it. Likewise, in Johor and Sabah. So, I think, for the near term, there are opportunities for us to tap in that same logic. That means growth in that 10-ish per cent mark and still maintaining margin and asset quality, which then leads us to why we wanted to do a rights issue.

When do you expect to complete the rights issue?
So, our EGM (extraordinary general meeting) is scheduled for the end of May. Our current plan is to try to complete the whole process by July.

You know, the rights shares are also tradeable. So, how it works is that you are provisionally allocated your allocation, and if you decide not to accept it, you can sell that off. So, as a shareholder, you can get some money back as well. That's why, when we thought through all the options, this kind of provides our shareholders a good balance, meaning, if they have money, they would take [the rights shares]; if they don't have money, they sell it and they still get something back for it.

We've had some discussions with some of our stakeholders. Clearly, we did ask our largest shareholder [Vertical Theme] for a letter of undertaking to support the rights issue, which they've given us. And from the discussions with all the analysts and fund managers, I think they can understand why we need to do it.

The press, including us, has been writing about Vertical Theme's interest in selling its stake to DBS. What's happening on that front?
Actually, if anything, this would be above us, at the shareholder level. We've not been consulted, so we don't really know.

I think we've shown through our performance that it's actually okay for us to continue on a standalone basis and keep driving our strategy the way it's going. So, for us internally, M&A is not something we consider.

So, no change in the board's thinking on M&A?
No. Like I said, actually, we're very happy and the board is very happy with the trajectory, with the strategy that's being executed, and with the outcome of where we are.

With everything that's happening, the macroeconomic uncertainties and what not, do you see a need to change any of your Acceler8 targets?
I think it's too early to do that. Things are fast evolving. And if we do, we will advise the market. But right now, we don't believe there is a need yet.

For FY2026, for now, what kind of return on equity target are you setting for yourself, given that you know you already have the rights issue in?
It's tough to talk about it now, because I'm just about to go out next month with exactly those details. But we can say that we are confident in being able to continue our trajectory across the metrics.

What can you guide on dividends going forward? You've been doing a 50% payout in the last three years since FY2022.
We've guided for 40% to 50%. I think that's the guidance we'll maintain. Official policy is up to 60%.

You're at the halfway mark of Acceler8 and showing good numbers. Is there anything that's not going as well as you had hoped for?
Yes, of course. That's why the loss of hair (laughs). I would love to say everything is going smoothly but it's not just a change in strategy. So when we spoke about Acceler8, it was really about changing it from foundation up. So we even looked at our core values. We spoke about redesigning the Alliance DNA. With banks, people are the prime movers of everything. How you grow, how you originate, how you underwrite, how you treat people. So, we developed everything from the ground up, from our core values to our customer promise, to what we expect of people, to even how we do our annual appraisals. We talk about performance-driven culture, all these are nice buzzwords, but execution, as I always tell you, is the key to that. So behind that, obviously, we had to mobilise the entire organisation to literally change the shape, the action, and it does take a fair bit of work.

The second thing is, clearly, the amount of increase in volume has also taken its toll. A slight underestimation in the amount of load that we push through the organisation. So, I think the acceleration of our investments into technology and scalability and people, we should have stepped up a little bit earlier. So, what the plan originally entailed was that we would start that journey and then start investing and then it will continue. But what then happened is that there were some hiccups because when the volumes came in, people were literally working 12 to 13 hours a day across the weekends, which is not healthy, and one shouldn't do that. So we've corrected that, but we should have done that a little bit earlier.

So the digital investments didn't quite go as fast as you would have liked.
Yes.

You'll be moving to your new headquarters soon in Jalan Ampang?
We're on track with our plan, we will start moving in July [and would have fully moved by end of August]. We're very happy about it. It's kind of also a physical manifestation of the changes that we spoke about. We've been here [at Menara Multi-Purpose] for about 30 years now. Rented all the way through. So the new building is really right in the heart of the city. It's a GBI gold building.

It's completed already? And you've got your certificate of completion and compliance?
All done. It's 29 storeys - with a rooftop, so 30 storeys.

Alliance Bank needs to do more for a better premium valuation, say analysts

By Kamarul Azhar

Alliance Bank Malaysia Bhd's share price touched RM5.40 ($1.63) on Feb 14 - the highest level since 2013. At that intra-day-high, the banking group was at 1.2 times its price-to-book (P/B) value, which was considerably high given its size.

A Bloomberg article reporting that Vertical Theme Sdn Bhd (VT), the banking group's largest shareholder, was mulling the sale of its 29.06% stake to DBS Group Holdings Ltd helped fuel the climb in Alliance Bank's share price.

Singapore's sovereign wealth fund Temasek Holdings holds 49% of VT through Duxton Investments, while the remainder is held by RRJ Capital founder Richard Ong, hotelier Ong Beng Seng, and corporate adviser Seow Lun Hoo through Langkah Bahagia Sdn Bhd.

Nonetheless, Alliance Bank's share price has retreated from the peak since then, falling to a low of RM3.93 on April 9. Selling pressure piled up following its announcement of a cash call, although it was not a big surprise given its relatively low capital ratio. The recent turn in market sentiment caused by the mounting trade tensions globally added more pressure on the stock.
It closed at RM4.30 last Thursday, valuing Alliance Bank - the smallest of Malaysia's eight banking groups by asset size - at a P/B of 0.97 times. For peer comparison, Affin Bank is valued at 0.56 times, while AMMB Holdings is valued at 0.83 times, and Hong Leong Bank at 1.06 times. (See table.)

Although Alliance Bank's valuation has dropped below one time P/B, investment analysts don't think the banking group is undervalued.

"Not really [it is not undervalued]. We recently downgraded them, and our forecasts don't even include the possible share price dilution yet," says Samuel Woo, MIDF Research's banking sector analyst.

"Their over-reliance on fee income [at a time the capital market is not doing so well] is an issue, because of the poor outlook on that front," Woo tells The Edge.

MIDF Research recently downgraded the banking sector to "neutral", in light of anticipated worsening economic conditions. Woo expects the banks will face headwinds, which include weaker loan growth, poorer non-interest income (NOII) outlook, higher provisioning costs, and possible net interest margin (NIM) compression.

"The reason why their share price shot up so much in recent times was because of the news on DBS. [Then] the share exercise [rights issue] affects its ROE (return on equity) quite badly, so it brings down its valuation quite a bit," says Woo.

RM600 million cash call
Alliance Bank is raising RM600 million through a proposed rights issue, which Bank Negara Malaysia approved last week.

The timing seems right for the bank to undertake a rights issue because of the climb in its share price. Over the past two years, it has gained 18.8% from RM3.67 at end-2022. However, the news did not go down well and selling emerged after the announcement.

According to a back-of-the-envelope calculation, based on the amount raised and its issued share capital of 1.548 billion shares, the rights shares will be priced at roughly 38.7 sen on a one-for-one basis.

Assuming the rights issue will be priced at a 10% discount over last Thursday's closing of RM4.30, the cash call would hypothetically be priced at RM3.87 on the basis of one rights share for every 10 shares held.

According to Maybank Investment Bank Research, the rights issue would shore up Alliance Bank's Common Equity Tier-1 (CET1) ratio to a more comfortable 13.5%, but equity and earnings dilution would be inevitable for shareholders who are not willing to fork out more capital.

Nevertheless, Maybank IB's analyst foresees that a stronger capital base will enable the banking group to experience better growth.

"Alliance Bank's CET1 ratio as at end-December 2024 stood at 12.4%, which is one of the lowest among peers. The RM600 million would improve the position to about 13.5%, which is much more comfortable, in our view.

"The improved capital position will also support the bank's growth strategies ahead," states Maybank IB Research in a March 24 report. It adds that the exercise would cause an 8% dilution in Alliance Bank's FY2026 estimated earnings per share (EPS), and a reduction in ROE to 9.3% from 10%.

Overhanging shareholder issue
Some opine that having Beng Seng - the founder and managing director of Hotel Property - as an indirect substantial shareholder would keep Alliance Bank on the watch list. This is because the tycoon is embroiled in a high-profile corruption case in Singapore.

Last year, the Malaysian-born tycoon was charged with obtaining gifts and obstructing justice together with former Singapore transport minister S Iswaran. On April 24, Beng Seng, who is currently out on bail, was granted approval by a district court to leave Singapore to travel to the US, Britain and Italy from April 28 to May 16 for work and medical reasons.

Iswaran was sentenced to a one-year prison term for accepting gifts valued at over $300,000 from Beng Seng during official dealings related to the Formula One race.

Beng Seng's interest in the bank, through VT, has drawn attention because of the corruption probe. Many wonder if the probe triggered the question of whether it was still fit and proper for the tycoon to remain as a shareholder of Alliance Bank. Would he have to exit VT, which owns a 29.06% stake in the bank, for that reason too?

Analysts who spoke to The Edge do not think Beng Seng's being an indirect substantial shareholder would affect the valuation of Alliance Bank.

Moving forward, analysts are watching if the banking group's Acceler8 2027 - a four-year strategic plan launched in 2023 with the goal of making Alliance Bank a preferred bank by FY2027 - will start bearing fruit.

Under the plan, Alliance Bank aims to achieve loan growth of between 8% and 10%, maintain an ROE of above 11% and keep cost-to-income at below 45%. The plan emphasises diversifying beyond traditional small and medium-size enterprises (SMEs) into consumer, wealth management and Islamic banking.

For MIDF's Woo, Alliance Bank will deserve a better premium valuation only when the group achieves its targets under the plan.