A financial institution that once made waves in the Malaysian market due to its ties to the Middle East and ambitious financing plans, Asian Finance Bank (AFB) has stepped back from the spotlight as it has continued to record losses since the second quarter of 2010.
In the first quarter of this year, the bank reported a net loss of RM1.81 million (US$601,529) against a net profit of RM1.14 million (US$378,863) in the same period in 2010. Although income rose to RM21.14 million (US$7.03 million) from RM18.56 million (US$6.17 million) a year earlier, its performance remained hampered by allowances for impairment on financing and advances of RM2.48 million (US$824,085), higher than the RM2.12 million (US$704,628) recorded in the previous corresponding period.
A point to note is that compared to its fourth quarter 2010 loss of RM19.48 million (US$6.47 million), AFB has improved its position significantly. Does this signal a better outlook for the bank, or are there still pitfalls ahead?
A growing portfolio…
Mohamed Azahari Kamil, the bank’s CEO, did not respond to Islamic Finance news. However, according to its results for the first quarter of 2011 the bank, which is majority-owned by Qatar Islamic Bank, has not changed its strategy of bridging the Middle East and Asia to achieve growth; its tagline since it first set up in Malaysia in 2005.
The bank said it is also developing new products and risk strategies. “Based on the positive outlook, the bank is poised to face the challenges ahead in 2011 to chart future growth in assets and hence contribute towards improvement in its profitability,” it added.
To its credit, AFB has steadily grown its financing portfolio, with total financing and advances reaching RM775.9 million (US$257.9 million) in the first quarter of this year from RM768.4 million (US$255.41 million) at the end of last year. However, net financing and advances stood at RM726.05 million (US$241.33 million) due to impairments.
Of its total financing and advances, 12.83% comprised those given to foreign entities, with RM46.25 million (US$15.37 million)-worth of financing granted to customers in Qatar. The majority of its financing book, however, is contributed by its Malaysian portfolio, which amounted to RM703.29 million (US$233.77 million) as at the first quarter of this year.
The bank has also provided RM25.81 million (US$8.58 million) and RM557,288 (US$185,238)-worth of financing to customers in Indonesia and the UK, respectively.
According to its financial statements, the bulk of its financing and advances portfolio is made up of RM183.64 million (US$61.04 million)-worth, or 23.67%, of exposure to the manufacturing sector. This is followed by the wholesale and retail trade; restaurants and hotels (16.21%); and the transport, storage and communication sectors (14.89%).
…with mixed results
Despite gains in overall financing and advances, a closer look at its financials shows that its portfolio in Indonesia and Qatar has declined by 2.82% and 4.07%, respectively, from the end of last year to the end of March 2011.
Additionally, although the bank has since narrowed allowances for impairment and advances, which seem to have peaked in the second quarter of last year at RM13.22 million (US$4.39 million), its impaired financing and advances continued to grow in the first quarter of this year, to RM56.3 million (US$18.7 million) against RM53.11 million (US$17.64 million) at the end of 2010.
To note, the second quarter of last year marked the beginning of the bank’s consecutive run of losses, when it reported a net loss of RM11.8 million (US$3.92 million). The value of assets the bank classified as impaired or non-performing also ballooned to RM78.67 million (US$26.13 million) in 2010.
Meanwhile, the increase in its impaired financing and advances in the first quarter of this year was the result of an additional RM9.87 million (US$3.28 million)-worth of assets it listed as impaired or non-performing during the three month period.
Its financial results show that the majority of its impaired assets comprised financing to the manufacturing sector, amounting to RM28.87 million (US$9.59 million) as at the end of March this year.
Outlook cloudy
With its mixed performance, the question remains: what lies in store for AFB? Although its core capital ratio has declined to 39.71% as at the end of March from 45.17% three months prior, it continues to be well capitalized with total equity of RM384.27 million (US$127.67 million). However, total assets have declined to RM2.1 billion (US$697,776) from RM2.04 billion (US$677,840) during the same period.
The bank has failed to achieve its goal of growing its financing portfolio to RM1 billion (US$332,324), which it targeted for the end of 2009.
Additionally, apart from AED87.5 million (US$23.82 million)-worth of financing it provided in 2008 to TNB Engineering Corporation, a unit of Malaysian utility Tenaga Nasional, to part-finance a project in the UAE, the bank has not acted as a bridge for investment opportunities between the Middle East and Asia as expected.
Hence, in spite of its ambitions and its strong ties to the Middle East – Yemen’s Tadhamon International Islamic Bank and Financial Assets Bahrain are also shareholders – AFB seems to have fallen short of its goals.
The institution is said to be on the lookout for the acquisition of a bank in Indonesia. This is reportedly to be completed by the end of this year.
However although the bank may benefit from further diversification of its operations, it will have to ensure a stable financial performance if it wants to venture into new markets and move ahead successfully.