ALLIANCE BANKING GROUP POSTED RM20.3 MILLION FOR 1ST HALF FY2006/7 PRE-TAX PROFIT

Kuala Lumpur, 17 November 2006 – The Alliance Banking Group posted a pre-tax profit of RM20.3 million for the first half-year ended 30 September 2006, compared to a pre-tax loss of RM281.3 million in the corresponding period last year.

The financial performance improved as a result of lower loan loss provisions and lower impairment loss. Loan loss provisions was 61.2% lower at RM176.8 million compared to RM456.1 million previously while impairment loss was 98.5% lower at RM407,000 compared to RM26.2 million in the corresponding period last year.

With an increase of 8.9% in net operating revenue year-on-year, Alliance Banking Group took the opportunity to take a more prudent approach by further making adjustment to the provisioning policy.

According to Bridget Lai, Group Chief Executive Officer of Alliance Banking Group, “The Group is committed to its long-term strategy of improving asset quality while growing quality loans, advances and fee-based income. In view of this, the Alliance Banking Group has reviewed its balance sheet and made the necessary adjustments and provisioning for bad debts.

Among the key changes for specific provisions that have impacted the Group’s financial performance were :-

• Marking down of the value of property collateral by 50% for non-performing loans (NPLs) that have been outstanding for more than five years but less than seven years; and
• Changes in NPL specific provisioning for accounts three months in arrears from six months previously in line with the NPL classification.

Had the Group not made the above specific provisions, it would have posted a profit before tax of RM128 million instead of RM20.3 million for the six-month ended 30 September 2006.

Stronger Islamic growth
The Group’s net interest income grew 15% compared to the previous corresponding period. This is due to strong Islamic financing growth of 30% or RM485 million year-on-year and was further attributed to improved margins in Islamic Banking.

Target segment loans growth
Consumer loans grew 11% year-on-year while Small and Medium-sized Enterprises (SMEs) loans also showed an upward trend. The performance of the Consumer Banking portfolio continued to grow across all products during the first six months of the financial year – credit cards by 21%, mortgage by 7% and hire purchase by 6%.

Commented Lai : “Our credit cards have outgrown the industry’s year-on-year average. For the 2nd Quarter of the current financial year, the Bank recorded a 19% growth, the best in five quarters in credit card growth. These are the results of the strengthening and extension of our distribution channels via direct sales force, third-party distribution channels and on-line banking.”

Building the SME customer franchise
SMEs remain a primary customer segment for Commercial Banking. A new Commercial Banking business model has been launched to improve the Group’s value proposition to the SMEs. Under the new business model, financing solutions are categorized either as Alliance Partnership or Alliance SME to better cater to the varied needs of the Commercial and SME customers. Underscoring the concept of community banking, 22 Business Centres have been set up to bring financing closer to the Bank’s SME customers.

Investment Bank transformation on track
The Alliance Investment Bank (AIB) and Kuala Lumpur City Securities (KLCS) merger exercise is on track and is expected to be completed by end December 2006. Upon completion, AIB will encompass the merchant banking business and the stockbroking business of KLCS. Going forward AIB will be more focused in its strategy for selective growth of its fee-based income.

Stringent underwriting standards
The Group’s loans and advances at RM13.9 billion declined 4.2% compared to 31 March 2006. The decline is largely due to loans amounting to RM331 million being written off and the redemption of several lumpy loans. In a strategic move to further reshape its loans portfolio mix, the Group is maintaining stringent credit underwriting for large corporate loans.

Improving asset quality
The Group’s net NPL ratio and gross NPL provisioning cover at 8% and 51% respectively, continue to improve further compared to 9.5% and 48.5% on 31 March 2006. This is attributed to a 151% improvement in recovery efforts which achieved RM114.5 million for the half year ended 30 September 2006 compared to RM45.7 million for the same period last year.

Sustainable growth
In an on-going effort to build the required infrastructure for sustainable growth and to meet and conform to global best practice standards, the Group undertook key transformation initiatives during the year. Infrastructure has been strengthened through the centralization of support services, integration of subsidiaries, new IT systems, the adoption of new and alternative delivery channels as well as integration of risk management.

In line with Basel 2 standards, the banking group has revamped its risk management framework for stronger portfolio growth and better asset quality. Recovery efforts have been strengthened with the setting up of the new Special Assets Unit and centralized collection centres for Consumer Banking and Commercial Banking.

Lai added: “Driven by a relationship approach, we have sharpened the Group’s value proposition to the consumers by repositioning our branch network in growing segments. We have also enhanced our product franchise and improved our sales and service offering. We are supporting our sales force by expanding and enhancing our Consumer Banking product suite in terms of new credit cards offerings, bancassurance products and unit trust funds. In Commercial Banking, we expanded our product range with new SME and Commercial Banking credit programme and Business Premise Financing.”

These improvement initiatives have put the Group on a firmer footing, enabling it to move ahead to focus on its growth agenda. Barring unforeseen circumstances, the Group expects to improve on its level of performance in the second half of the current year.