RAM Ratings reaffirms AmBank Islamic’s AA2 rating

Published on 18 Nov 2019.

Share Tweet Email

RAM Ratings has reaffirmed AmBank Islamic Berhad’s (the Bank) AA2/Stable/P1 financial institution ratings (FIRs) alongside the ratings of the Bank’s outstanding debt facilities (Table 1). The reaffirmed FIRs reflect those of AmBank (M) Berhad (rated AA2/Stable/P1), the core banking subsidiary of AMMB Holdings Berhad (AMMB or the Group, rated AA2/Stable/P1).

Operating under a universal banking model, AmBank Islamic is closely integrated with its sister banks, AmBank and AmInvestment Bank Berhad (rated AA2/Stable/P1). The Bank is viewed as strategically important to AMMB, given its role as the Group’s Islamic banking arm. As such, group support is envisaged to be readily extended in times of stress. 

Following a 5% expansion in FY Mar 2019, propelled by residential mortgages and SME financing, the Bank’s financing base had narrowed by 2% q-o-q to RM28.8 bil in 1Q FY Mar 2020. The decline was mainly attributable to a few corporate repayments as well as continued contraction of auto financing. AmBank Islamic’s gross impaired financing (GIF) ratio of 2.1% as at end-June 2019 was weaker than the industry’s 1.6%. A major portion of impaired financing had stemmed from one lumpy real estate exposure (impaired since FY Mar 2015) and, to a lesser extent, several smaller borrowers in the construction and manufacturing sectors. Meanwhile, the Bank’s credit cost ratio (excluding a gain from the sale of legacy impaired financing) in FY Mar 2019 was higher at 50 bps amid lower recoveries, compared to 22 bps the previous year. Its GIF coverage ratio, with regulatory reserves, came in at a sufficient 100% as at end-June 2019. 

With a relatively high financing to deposits ratio of 99% as at the same date, AmBank Islamic’s deposit franchise still lags that of peers. Including its large base of non-deposit funding, the Bank’s financing to funds ratio is more comparable at 87%. While AmBank Islamic is exposed to a certain degree of depositor concentration risk, this is lower than that of two years ago. Furthermore, the proportion of current and savings account deposits has improved notably, accounting for 31% of total customer deposits as at end-June 2019 (end-March 2018: 26%). The Bank’s liquidity coverage and net stable funding ratios stood comfortably above 100%. 

While pre-tax profit jumped 34% to RM405.7 mil in FY Mar 2019, underpinned by lower intercompany expenditures, AmBank Islamic’s return on risk-weighted assets of 1.5% was still relatively subdued compared to peers’. The Bank’s weaker profitability was also reflected by a thin net financing margin (1.9%) as well as a small proportion of non-financing income to gross income of 10%. Nevertheless, AmBank Islamic’s capital position remained sound vis-à-vis its risk profile. The Bank recorded common equity tier-1 and total capital ratios (including 1Q FY Mar 2020 profits) of 11.3% and 16.6%, respectively, as at end-June 2019.

Table 1: AmBank Islamic’s issue ratings



RM3 billion Senior Sukuk Musharakah Programme (2010/2040)


RM3 billion Subordinated Sukuk Murabahah Programme (2014/2044)



Analytical contact
Chow Kah Mun
(603) 3385 2501

Media contact
Padthma Subbiah
(603) 3385 2577


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad

Rating Rationale

Ratings on AmBank Islamic Berhad