23 April 2012
Affin: Improving asset quality
RECOVERIES used to be one of the contributors to income, but over time, this has become less significant.
“Credit cost has dropped significantly over the years. In the long term, we are looking at a credit cost of about 25-30 basis points,” says Affin Bank managing director Datuk Zulkiflee Abbas Abdul Hamid.
A lot of effort is placed on managing asset quality, a process which started way back in 2006 and 2007.
In managing this, weekly committee meetings are held to look at all impaired loans and monitors accounts with early warning signals to nurture them back to health quickly.
Reports indicate that a substantial amount was recovered in 2006-2007 under the former PSCI Industries Bhd and some money was also recovered last year under a loan syndication to Putra Place which is owned by Metroplex Bhd.
“Contrary to market perception, we do not see any legacy issues. Gross non-performing loan (NPL) was RM3bil; that amount came down to RM865mil through our recovery efforts and also writing off. We brought the loan book down to RM16bil and then brought it up again to RM30bil,” says Zulkiflee.
With a positive trend in loan growth and falling impaired loans, the fundamental outlook is good for Affin Bank.
“If our business is not sustainable, you will see the impaired loans position worsening. But this is not the case as you can see our asset quality continues to improve over the years. We are growing, recovering and putting in the right credit culture and skills,” he says.
As part of the transformation process that began seven years ago, strong emphasis is placed on the enhancing of credit and risk culture where relationship managers are trained to be more proactive in managing their accounts.
“Initially the CEO and now, the CRO (chief risk officer) takes it through to the credit people and relationship managers on a weekly basis,” he adds.
“We started issuing “lessons learnt” case studies on operational, market and credit risk,” said group CRO K. Kasinathan.
Focus was also placed on how to manage customer relationships and structure facilities.
An internal credit/operational risk certification programme was drawn up covering business, consumer credit, operational and market risk. An e-learning portal was also set up in 2010.
Credit and operational risk workshops and Friday credit clinics are conducted by the group CRO.
“We have revamped the credit policy and risk framework,” says Kasinathan.
While drawing up the 2012 credit plan, Affin has considered the external environment and decided that within this consolidation phase, conservation of capital as well as preservation of asset quality would be pivotal in ensuring business sustainability.
As such, capital injection by shareholders is under way with RM500mil already raised in the first quarter of the year. Another tranche for capital injection is in the works.
Among key risk initiatives undertaken are the standardisation of loan documentation, setting up of a consumer credit scoring solution and loan management system.
Also in place is a business loan credit rating system that is robust enough to be mapped to external rating agencies.
A loan origination system for the consumer mass market products has been set up, followed by a system for business loans by the middle of this year.