KUALA LUMPUR, Nov 30 — Affin Bank Bhd expects the impact from the Covid-19 pandemic to become more visible in the fourth quarter of the financial year ending December 31, 2020 (FY20), according to Kenanga Research .

The research house said based on the bank’s presentation slides to analysts recently, the bank appeared to have toned down its Affinity in Motion (AIM22) return of equity target to seven per cent in FY22 from eight per cent earlier.

"Other AIM22 targets are gross impaired loan ratio of less than 2.5 per cent and cost-to-income ratio of less than 55 per cent,” it said in a note today.

Last Friday, Affin Bank announced that its net profit for the third quarter (Q3) of FY20 fell to RM48.72 million from RM72.40 million in the same quarter last year, while revenue rose to RM694.20 million from RM474.26 million previously.

Quarter-on-quarter, the bank saw its Q3 FY20 headline net profit slip 28 per cent on higher tax rate, while the absence of the RM80 million Day One Modification losses in the immediate preceding quarter was largely utilised to book in pre-emptive loan provisions of RM70 million in Q3.

With that, Kenanga Research said the bank’s loan loss coverage (LLC) now stands at 61 per cent, closing the gap to the 70 per cent target by end-2021 that management shared earlier.

"Thus we believe credit cost trend ahead will be largely dependent on asset quality outlook, now that ‘catch-up’ provisions to build coverage are close to being out of the way,” it said.

Despite the company’s profit after tax and minority interests for FY20-estimate being tweaked down by four per cent, Kenanga Research continued to keep its "market outperform” rating on Affin Bank with a higher target price of RM1.50 from RM1.45 previously.

"In our view, Affin Bank’s capital strength provides ample headroom for the group to absorb the required loan impairment allowances ahead with respect to the impact from the pandemic, as well as to build up LLC.

"This is balanced by our concern regarding asset quality, where its high corporate exposure may see volatile earnings and keep bottom-line at depressed levels ahead,” it said. — Bernama