Half Year Analyst Briefing as at 30 September 2010

ALLIANCE FINANCIAL GROUP

ANALYST BRIEFING- 1HFY11 Results ended 30 September 2010 -

• Key Messages

AGENDA

• 1HFY2011 Financial Performance

• Questions & Answers

2

80

100

120

140

160

180

2Q10 3Q10 4Q10 1Q11 2Q11

PBT Operating ProfitRM ’mil

• 2QFY2011 - PBT of RM137.6mil (+27.3% YoY) due to good run rate from most business divisions and

lower impairment charge

• 1HFY2011 - PBT of RM287.9mil (+68.8% YoY) was due to higher net income, lower overheads and

lower impairment charge

• 1HFY2011- overheads were contained at RM261.2mil, a saving of 2.9%

• 1HFY2011 - an impairment loss of RM0.7mil on a CLO (impairment loss of RM122.8mil in 1HFY2010)

Financial Performance

Maintaining earnings growth momentum

123.4

130.3

138.8

151.4

108.1

131.0

107.4

150.3

3

137.6

160.5

0

100

200

300

400

1H09 2H09 1H10 2H10 1H11

PBT Operating Profit

RM ’mil

230.0

73.3

170.5

238.4287.9

273.6

219.7239.5

269.1

312.0

4


Contribution by line of business

Net Income Total Loans NIM

1HFY10 1HFY11 1HFY10 1HFY11 1HFY10 1HFY11

Consumer 41.4% 43.9% 59.2% 59.1% 3.0% 3.4%

SME 20.9% 21.7% 19.6% 20.2% 3.8% 4.5%

Corporate & Commercial 16.1% 16.2% 19.8% 19.7%2.6% (a)

3.7% (b)

2.9% (a)

4.1% (b)

Group Special Assets Management

(GSAM)2.7% 1.9% 1.4% 1.0% 6.6% 6.7%

Investment Banking 3.0% 2.1% - - 1.7% 0.7%

Group Treasury 13.3% 12.9% - - 0.8% 0.5%

Alliance Investment Management

(AIM)0.7% 0.6% - - - -

Consolidation Adjustment 1.9% 0.7% - - - -

Alliance Financial Group 100.0% 100.0% 100.0% 100.0% 2.4% 2.7%

Note: (a) refers to Corporate Banking

(b) refers to Commercial Banking

Quarterly

2QFY10 2QFY11 % YoY

145.0 174.2 20.1%

49.6 58.7 18.3%

55.6 64.0 15.1%

250.2 296.9 18.7%

• 2QFY2011 - benefited from 6.2% YoY loans growth, 75bps increase in OPR since March 2010 and

stronger non-interest income

• 1HFY2011 - driven by +6.2% loans growth and OPR hike but overall net income was dragged down

by weaker than expected non-interest income especially on brokerage fees and credit cards

business


Higher income

Half Yearly

(RM ’mil) 1HFY10 1HFY11 % YoY

Net Interest Income 282.3 343.3 21.6%

Islamic Banking Income 109.0 114.3 4.9%

Non-Interest Income 117.4 115.6 -1.5%

Net Income 508.7 573.2 12.7%

5

3.0%

3.4%

3.8%

4.2%

Jun-09 Oct-09 Feb-10 Jun-10

Group Corporate

4.1%

4.5%

4.9%

5.3%


Commercial

4.4%

4.6%

4.8%

5.0%


SME

5.2%

5.5%

5.8%

6.1%


Consumer

KEY DRIVERS

GIM GIM GIM GIM


GIM remains stable

6

4.0%

4.5%

5.0%

5.5%

6.0%

Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10


AFG 5.6% 5.8% 5.6% 5.4% 4.7% 4.4% 4.3% 4.4% 4.4% 4.7% 4.5%

-15%

-5%

5%

15%

3,600

3,900

4,200

4,500

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

RM 'mil - lhs

% QoQ - rhs

Loans breakdown by businesses Consumer

Corporate & Commercial

SME

• AFG loans growth of 6.2% in 2QFY2011

• AFG loans growth was driven by SME and supported by Consumer

Banking loans, which grew by 9.6% and 6.0% respectively

• Exit book loans have decreased to RM226mil in 2QFY2011 from

RM288mil in 2QFY2010


Loans growth driven by SME

(RM ’mil)FYE

31/3/10

Consumer 12,800

SME 4,235

Corporate & Commercial 4,123

Exit Books 252

Total 21,410

FYE 2010 FYE 2011% YoY

2Q 2Q

12,172 12,897 6.0%

4,025 4,413 9.6%

4,068 4,301 5.7%

288 226 -21.6%

20,553 21,837 6.2%

7

-2%

1%

4%

7%

10%

10,500

11,500

12,500

13,500

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

RM 'mil - lhs

% QoQ - rhs

-4%

-1%

2%

5%

8%

3,600

3,800

4,000

4,200

4,400

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

RM 'mil - lhs

% QoQ - rhs


Cost management - an area of priority

8

40%

44%

48%

52%

56%

0

40

80

120

160

2Q10 3Q10 4Q10 1Q11 2Q11

Personnel Costs Establishment Costs

Marketing Expenses Admin & General Expenses

CIR (%) - rhs

RM ’mil

126.8

146.8

138.8

124.8

136.4

% YoY 2QFY10 1QFY11 2QFY11

Personnel 5.3% 0.0% 9.6%


Establishment -8.7% -7.9% -0.5%


Personnel 22.3% -33.2% 46.9%


Establishment 1.8% -64.4% 6.7%

0%

20%

40%

60%

80%

2Q10 3Q10 4Q10 1Q11 2Q11

Personnel Cost

0%

10%

20%

30%

40%

2Q10 3Q10 4Q10 1Q11 2Q11

Establishment Costs

0%

1%

2%

3%

4%

5%

2Q10 3Q10 4Q10 1Q11 2Q11

Marketing Expenses

0%

4%

8%

12%

2Q10 3Q10 4Q10 1Q11 2Q11

Admin & General Expenses

62.1%58.8%

62.3% 64.2% 63.3%

25.7%27.4%

31.2%28.7%

23.8%

2.3%

3.4%3.7%

1.9%

3.1%

9.9%10.4%

2.8%

5.2%

9.8%

50.6%

53.0%

50.0%

45.2%

45.9%

70

75

80

85

90

95

3.4

3.8

4.2

4.6

2Q10 3Q10 4Q10 1Q11 2Q11

Gross Impaired Loans Ratio - Old GP3 - lhs

Gross Impaired Loans Ratio - FRS 139 - lhs

Loan Loss Coverage - rhs

Asset quality continues to improve as economy recovers

% %

89.0%

91.0%

94.4%

85.6%

4.1%

3.9%3.8% 3.8%

3.9%

• The Group adopted FRS 139 w.e.f. 1

April 2010

• Asset quality remains stable at 3.8% in

2QFY2011 with focus to improve on

collection system and credit risk

• Loan loss coverage reduced from

85.6% to 83.2% in 2QFY2011

9

3.8%

83.2%


FRS 139

Note: Collective allowance for domestic loans is computed

based on 1.5% requirement under the transitional

provisions of the BNM guidelines on Classification and

Impairment Provisions for Loans/Financing issued in

January 2010

0

5,000

10,000

15,000

20,000

25,000

30,000

2Q10 3Q10 4Q10 1Q11 2Q11

CASA Fixed Deposits Money Market Deposits Others

1.4%

1.8%

2.2%

2.6%

3.0%

2Q09 4Q09 2Q10 4Q10 2Q11

Cost of Funds (%)

70%

75%

80%

85%

90%

95%

2Q09 4Q09 2Q10 4Q10 2Q11

AFG Industry


AFG‟s L/D ratio closer to industry average

L/D ratio within acceptable levelsIncrease in cost of funds due to competition

82.2%

76.6%

90.3% 90.6%

74.3%73.7%

78.9%

82.8%

2.7%

2.4%

1.7%

2.1%

Deposit rising on build up in fixed deposits

10

79.2%

81.3%

2.0%

92.6%

82.4%

84.1%

88.9%

73.5%

78.2%77.9%

81.4%

2.6%

2.1%

1.9%

1.7%

RM ’mil

38.1% 40.9% 41.5% 41.5% 35.4%

57.3% 51.8%51.7% 50.8% 53.8%

2.4% 4.7% 4.9% 5.9%

9.9%2.2% 2.6% 1.9% 1.8%

0.9%

1HFY10 1HFY11 % YoY

2,351.7 2,657.6 13.0%

3,253.8 3,584.1 10.2%

15.4 16.1 +0.7

11.1 11.9 +0.8


Capital position remains strong

(RM ’mil) FY 2009 FY 2010

Tier I Capital 2,234.1 2,429.2

Total Capital Base 3,167.3 3,339.3

RWCR (%) 14.7 15.4

Core Capital Ratio (%) 10.3 11.1

• AFG’s core capital and risk-

weighted capital ratio (RWCR)

continued to improve to 11.9%

and 16.1% in 1HFY2011

compared to 11.1% and 15.4%

in 1HFY2010

• Total capital base of RM3.6bil,

increased by 10.2% YoY. Tier I

capital represents 74% of total

capital, improved further to

RM2.7bil

• Healthy capital position and is

in line with BASEL III

requirements

11

FY 2009 FY 2010

Profitability• Net Interest Margin

• Cost of Funds

2.8

2.7

2.7

1.9

Business

Performance

• NFI / Total Income

• Cost Income Ratio

• LD Ratio

• RWCR

22.4

53.0

76.6

14.7

24.2

52.1

90.6

15.4

Asset

Quality

• Gross Impaired Loans

• LLC

4.5

99.7

3.8

94.4

Shareholder

Value

• ROAA

• ROAE

• P / BV

0.8

8.6

0.9x

0.9

10.5

1.5x


Key financial ratios

12

FY 2010 FY 2011

2Q 3Q 4Q 1Q 2Q *

2.6

2.0

2.7

1.9

2.8

1.7

2.8

1.7

2.8

2.1

24.0

50.6

90.3

15.4

24.5

53.0

88.9

15.2

24.2

50.0

90.6

15.4

19.4

45.2

92.6

15.5

20.9

45.9

82.8

16.1

4.1

89.0

3.9

91.0

3.8

94.4

3.8

85.6

3.8

83.2

0.8

8.8

1.4x

0.9

10.5

1.4x

0.9

10.5

1.5x

1.4

14.5

1.4x

1.3

13.8

1.5x

* Note: comparison made between FY2010 against 2QFY2011

• Key Messages

AGENDA

• 1HFY2011 Financial Performance

• Questions & Answers

13

Moving from transformation journey to sustainable growth

Today

Transformation

Execution

• Focus on Execution

• Leveraging on Existing Strengths

• Synergising Lines of Business

• Productivity Management

• Sustainable Growth

AFG’s Journey

• Restructure and Improve Portfolio

Quality

• Improve Risk and Operational

Controls

• Invest in People and Technology

• Branch Expansion

• Branding

14

Organisational Chart

15

Key roles being filled

New Head Identified

Group Chief Operating Officer

Eric Lee

Group Chief Financial Officer

Low Choon Seong

Group Chief Credit Officer

Timothy Daniels

Corporate Strategy &

Corporate Communications

Group Human Resource

Michelle Chow Lai Pheng

Group Legal

S. Gerard Anand A/L S.

Sinnappah

Kay Chuan Seng

Group Internal Audit

Pang Choon Han

Group Chief Risk Officer

Group Compliance

Teow Leong Wah

Search in Progress

Consumer Banking

Choo Joon Keong

Corporate & Commercial

Banking

Steven Kenneth Miller

SME Banking

Nik Azhar Bin Abdullah

Investment Management

Tuan Haji Yahya Ibrahim

Islamic Banking

New CEO Identified

Investment Banking

Yeo Chin Tiong

Financial Markets

Building sustainable growth

Looking Ahead

Priority Growth Areas

Consumer SME Commercial & Corporate

Favourable Economic Environment

• Net beneficiary of rising interest rates

• Streamlining industry focus

Strong Bank Assets

• Deep customer relationships

• Strong risk culture and framework

• Good asset quality and strong balance sheet

• Performance and results oriented team

Segment-driven growth, leveraging shared expertise

Asset Mgt.Islamic TreasuryInv. Bank

Drive Fee

Income

Synergising

Lines of

Business

Build Wealth

Management

Enhance

Cross-Selling

16

Gross

Impaired

Loans

CIR

ROE

Dividend

Policy

Over the medium term (3-5 years) we will ...

… continue to be better than industry

… move to industry average (45 - 48%) through Y-o-Y

improvements, driven by:

• targeted revenue growth

• productivity focus

… achieve industry average (14 - 16%) through Y-o-Y

improvements, driven by:

• focus on underlying earnings

• prudent capital management

… pay “as much as we can afford, whenever we can”

17

Y1 Y2 Y3

Looking Ahead

Key Messages

Bank is strong and performing well

Delivering value to our shareholders

We are gaining momentum

• The Group has performed well in 2QFY2011 despite a competitive operating environment

• We are executing based on transformation and investments made

• Adoption of FRS 139 had a positive impact on opening reserves and asset quality remains

stable

• Growth to be in-line with the economic cycle supported by sustainable loans growth and higher

customer acquisition capacity to build further on fee income growth

• We remain well-capitalised

• We pay good dividends

• All our business decisions will be evaluated based on a long-term perspective

18• We are ensuring growth is value creating

Investor Relations

Alliance Financial Group7th Floor, Menara Multi-Purpose, Capital Square

8 Jalan Munshi Abdullah

50100 Kuala Lumpur, Malaysia

www.alliancebank.com.my/investorrelations.html

THANK YOU

19

Income Statement (RM ’mil) 1HFY11 1HFY10 % YoY

Interest Income 588.3 538.4 9.3%

Interest Expense (245.0) (256.1) -4.3%

Net Interest Income 343.3 282.3 21.6%

Islamic Banking Income 114.3 109.0 4.9%

Non-Interest Income 115.6 117.4 -1.5%

Net Income 573.2 508.7 12.7%

Operating Expenses (261.2) (269.2) -3.0%

Operating Profit 312.0 239.5 30.2%

Write back/Allowance for NBD (23.4) 53.8 -143.5%

Allowance for Impairment (0.7) (122.8) -99.4%

Loan Impairment Allowances (24.1) (69.0) -65.1%

Profit before Taxation &

Zakat287.9 170.5 68.8%

Taxation & Zakat (75.0) (46.2) 62.3%

Profit after Taxation & Zakat 212.9 124.3 71.3%

2QFY11 1QFY11 % QoQ 2QFY10 % YoY

311.6 276.7 12.6% 268.5 16.1%

(137.4) (107.6) 27.7% (123.5) 11.3%

174.2 169.1 3.0% 145.0 20.1%

58.7 55.6 5.6% 49.6 18.3%

64.0 51.5 24.3% 55.6 15.1%

296.9 276.2 7.5% 250.2 18.7%

(136.4) (124.8) 9.3% (126.8) 7.6%

160.5 151.4 6.0% 123.4 30.1%

(22.8) (0.5) 4460.0% 79.8 -128.6%

(0.1) (0.6) -83.3% (95.1) -99.9%

(22.9) (1.1) 1981.8% (15.3) 49.7%

137.6 150.3 -8.4% 108.1 27.3%

(35.2) (39.8) -11.6% (30.0) 17.3%

102.4 110.5 -7.3% 78.1 31.1%

Income Statement

20

2.1%

2.5%

2.9%

3.3%

Apr-09 Aug-09 Dec-09 Apr-10 Aug-10

Group Corporate

3.4%

3.8%

4.2%

4.6%


Commercial

3.8%

4.2%

4.6%

5.0%


SME

3.0%

3.3%

3.6%

3.9%


Consumer

KEY DRIVERS

NIM NIM NIM NIM


NIM remains at 2.8% despite intense competition

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%



AFG 3.1% 3.1% 3.0% 2.9% 2.6% 2.3% 2.6% 2.7% 2.8% 2.8% 2.8%

21

5

9

13

17

21

25

Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10

% Y

oY

Ch

an

ge

Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10

AFG 9.8 12.1 14.2 17.7 22.1 22.1 18.4 15.5 9.8 8.0 9.3 7.9 6.2

Industry 9.8 8.9 10.3 12.0 10.7 13.0 11.2 8.4 7.3 8.1 10.3 13.0 12.5

MIER Consumer Confidence IndexInterest Rates MovementReal GDP Growth (%YoY)

KEY DRIVERS

*

* after interest-in-suspense

Loan Drivers

22

Loan drivers

Economic PurposeLoan

(RM ’mil)% YoY

Gross

Impaired

Loans

(RM ’mil)

% Share

Gross

Impaired

Loans Rate

(%)

Purchase of Securities 340.0 3.1% 17.0 2.0% 5.0%

Purchase of Transport Vehicles 789.4 -23.8% 10.3 1.2% 1.3%

Purchase of Landed Property 11,322.9 4.8% 314.9 37.7% 2.8%

Purchase of Fixed Assets 90.7 50.4% 0.2 0.0% 0.2%

Personal Use 2,094.0 30.0% 39.7 4.8% 1.9%

Credit Cards 652.7 -4.6% 14.1 1.7% 2.2%

Construction 224.1 -30.4% 14.0 1.7% 6.2%

Working Capital 5,700.1 10.9% 376.1 45.0% 6.6%

Others 623.0 9.9% 49.1 5.9% 7.9%

Total 21,836.9 6.2% 835.4 100.0% 3.8%

Loans & Asset Quality

23

Loans by LOB

24

Breakdown of loans by LOB

1H08 2H08 1H09 2H09 1H10 2H10 1H11

Consumer 51.4% 53.3% 53.4% 55.3% 59.2% 59.8% 59.1%

Corporate & Commercial 43.0% 42.9% 44.1% 20.3% 19.8% 19.2% 19.7%

SME n.a. n.a. n.a. 22.7% 19.6% 19.8% 20.2%

Exit Books 5.6% 3.8% 2.5% 1.7% 1.4% 1.2% 1.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Note: the separation of SME business from Commercial Banking since 2H09

0

10

20

30

40

50

60

70

2Q10 2Q11

Non-interest income - driven by improving market conditions

16,394

25,857

3,394

4,912

9,848

RM ’000

6,382

3,7997,359

12,106

5,907

3,515

5,460

6,353

55,637

64,078

8,429

% YoY

+57.7%

+44.7%

-14.4%

-40.5%

+64.5%

-40.5%

-14.1%

Commission & Fees

(40.4%)

Wealth Management

(7.7%)

Credit Cards

(13.2%)

Brokerage Fees

(5.9%)

Investment Sales Gain

(18.9%)

Other Non-Operating

(5.4%)

Forex

(8.5%)

Note: ( ) denotes share of each component to total non-interest income25


0

20

40

60

80

100

120

1H10 1H11

43,130

9,049

7,450

23,855

7,205

8,244

115,588

16,655

RM ’000

35,215

7,694

15,848

18,450

12,072

8,148

117,384

19,957

Transitional provision - On 26 January 2010, BNM issued the revised BNM Garis Panduan 3 („BNM/GP3‟) -

“Classification and Impairment Provisions for loans/Financing” which sets out the minimum requirements on the

classifications of impaired loans/financing and allowances for loan/ financing impairment effective for annual

Accounting period beginning on or after 1 January 2010. The principles in the revised BNM/GP3 are consistent with

those applicable under FRS 139, except that there is a transitional provision.

Under FRS 139 Transitional provision Existing GP3

Individual impairment

allowances

For individually significant accounts, net present

values of future cashflows are discounted based on

original effective interest rates and compared

against carrying amount

Individual allowances (FRS 139) + Specific

allowances (GP3)

Existing GP3 allowances

Collective impairment

allowances

Estimating losses of a homogenous pool by deriving

Probability of Default and Loss Given Default

All loans, advances and financing

1.5% x {Total outstanding loans/financing –

Individual impairment allowances (FRS 139) –

Specific allowances (GP3)}

Stock broking and Share margin financing

No change to existing GP3 basis

Alliance Bank Group had elected for transitional provision and set the threshold for individual impairment assessment for

Corporate Banking, Commercial and SME loans, advances and financing.

For collective assessments, the transitional provision methodology has been agreed, i.e. under the transitional provision, for

loans, advances and financing, there is no change to the existing BNM GP3 basis.

Transitional FRS 139

26

Non-Impaired Impaired

• Corporate

• Large Comm

• SME

Retail/

Consumer

• Mortgage

• HP

• Credit card

• P/Loan

• Stock broking

FULL BLOWN FRS 139

Individual Assessment

Using DCF Method

CA = PD x LGD x

LIP x O/S

CA = PD x LGD x LIP x O/S

CA = PD x LGD x

LIP x O/S

Large

loan

>RM1mil

Portfolio -

small loan

<RM1mil

Individual Assessment (IA)

Legend:

TRANSITIONAL PROVISION

Non-Impaired Impaired


using DCF Method

CA = 1.5% x

[O/S – IA

Using DCF -

IA using BNM

GP3]

Large

loan

>RM1mil

Portfolio -

small loan

<RM1mil


using BNM GP3’s time-

based method

Collective Assessment (CA)

PD Probability of Default

LGD Loss Given Default

O/S Outstanding Balance

LIP Loss Identification Period

Loans Impairment Methodology

27

Future Opportunities

• Leverage relationship and risk management strengths in SME and Corporate & Commercial

LOBs - key beneficiaries of improving economic environment

• Ongoing productivity improvements in Consumer Banking will have significant upside

• Islamic product suite a complement to conventional as sector continues to be actively

promoted

• Wealth management and other fee income opportunities to enhance margins

• Investment Banking and Asset Management capabilities currently under-utilised - attractive

businesses with high cross sell potential

• Significant value creation opportunity from Treasury

28

Market assessment indicates significant additional potential for AFG

Collateralised Loan Obligations (CLOs) are a matter of the past

• As at March 2010, the

Group had made

100% provision

Key points: • Matured

• AFG’s exposure at

super senior level

• Matured

• AFG’s exposure is fully

covered

29

CLOs

(RM ’mil) Kerisma Idaman Capital CapOne

Total

Issuance

AFG’s

Exposure

Total

Issuance

AFG’s

Exposure

Total

Issuance

AFG’s

Exposure

• Total Issuance 1,000mil175mil

(17.5%)800mil

240mil

(30%)1,000mil

10mil

(1%)

• Maturity Date Jun-09 Oct-11 Sep-10