Alliance Bank's dividend outlook holds: Kenanga Research

KUALA LUMPUR: Alliance Bank Malaysia Bhd's dividend outlook remains intact despite higher bond yields, with the potential earnings impact from its fixed-income securities expected to be limited.

Kenanga Research estimated that higher bond yields in the third quarter of calendar year 2026 could have a one per cent impact on earnings from fixed-income securities classified as fair value through profit or loss (FVTPL).

However, the firm said the impact should be relatively small compared with other banks as about 98 per cent of fixed income securities requiring marked-to-market are found in the fair value through other comprehensive income (FVOCI) category (revalued through reserves).

"Based on CET1 levels of 13.4 per cent, our calculation indicates that the rise in Malaysian Government Securities (MGS) rates (at a 50 basis points (bps) since June for 10-year MGS), could still allow CET1 to remain comfortably above 13 per cent, ie. not seeing dividends risk."

The bank also has an additional 60-70 bps capital benefit from the adoption of Basel three final reforms, it added.

Kenanga Research said Alliance Bank's deposit competition remains, though this also reflects a favourable loan pipeline, with the competition levels still commensurate with previously revised net interest margin (NIM) guidance.

It noticed that the bank's loan to fund ratio was at 87.7 per cent as at end-June which has headroom versus the industry's 82.3 per cent.

"We believe this ratio could nudge closer to the industry average as it increasingly taps short-term wholesale funding, which could be less pricey versus promotional fixed deposit rates," it said.

Overall, Kenanga Research said Alliance Bank's smaller exposure to fixed income investment securities exposed to profit and loss revaluation confers a higher degree of earnings protection near term.

"Alliance Bank also is also viewed as an expanded FBM KLCI inclusion candidate."

The firm kept its "Outperform" call in Alliance Bank with target price of RM5.50 for its small-cap bank pick.