Affin Bank eyes growth boost from Sarawak government's deposit injection

New Straits Times

20-05-2025

KUALA LUMPUR: Affin Bank Bhd could see positive catalysts arising from the Sarawak State Government's initial injection of substantial current and savings account (CASA) deposits into the bank.
Kenanga Research, based on its internal model, estimated that every RM1 billion increase in CASA deposits could reduce the cost of funds by 3 basis points (bps) and boost return on equity (ROE) by 10 bps.
Affin Bank Bhd reported a 12.6 per cent rise in net profit for the first quarter of 2025 (1Q25) to RM124.1 million, supported by stronger net income.
Kenanga noted that the bank's quarterly performance accounted for 20 per cent of its full-year projection and 22 per cent of the consensus forecast.
"The group's net interest margin (NIM) outlook is expected to be brighter, with it already beating its financial year 2025 (FY25) CASA target of 31 per cent, thanks to more non-state-backed deposits in Sarawak.
"This comes even before Affin Bank implements payroll services to accommodate up to 30,000 civil servants there," it added.
The firm said that following its model revisions, it has adjusted its earnings forecasts for Affin Bank for FY25 and financial year 2026 (FY26) lower by 2 per cent and 1 per cent, respectively.
Meanwhile, Hong Leong Investment Bank (HLIB) said it has factored in the enlarged share base resulting from the recent bonus issue.
Despite this, it is maintaining its target price of RM3.00 and reaffirming its 'Buy' recommendation on Affin Bank.
HLIB explained that this is mainly due to a revision in its beta assumption from 1.0 to 0.9, indicating its belief that the bank now carries a lower risk profile.
"We believe the premium is fair given the emergence of the Sarawak Government as Affin Bank's largest shareholder, presenting it with better prospects to leverage the state's growth ambitions.
"That said, we believe Affin's risk-reward profile remains tilted to the upside, with significant growth prospects that are yet to fully materialise. Further upside largely hinges on tangible benefits emerging from the Sarawak government's strategic involvement," it added.