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RAM Ratings reaffirms Alliance Islamic’s A1 rating

Published on 22 Nov 2019.

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RAM Ratings has reaffirmed Alliance Islamic Bank Berhad’s (the Bank) A1/Stable/P1 financial institution ratings (FIRs) and the ratings of its debt facilities (Table 1). The FIRs reflect our expectation of continued strong support from its parent, Alliance Bank Malaysia Berhad (the Group, rated A1/Stable/P1), given the Bank’s role as the Group’s Islamic banking arm. 

Operating under a leverage model, Alliance Islamic is closely integrated with the Group. The Bank significantly leverages on its parent’s franchise, branch network and risk management systems. As such, it is expected to receive ready group support when needed. 

Alliance Islamic’s credit cost ratio remained relatively high at 56 bps and 60 bps (annualised) in FY Mar 2019 and 1Q FY Mar 2020, respectively, due to a sizeable proportion of financing for personal use (23% of financing book), which includes personal financing and part of the Alliance One Account (AOA) portfolio. The Bank’s gross impaired financing (GIF) ratio, however, eased to 1.2% as at end-June 2019 (end-March 2018: 1.3%; banking industry average: 1.6%), given an expanding financing base. We anticipate some slippage in asset quality as the AOA portfolio seasons, specifically the vintage before a credit tightening in June 2018. Alliance Islamic’s loss absorption capacity is healthy, with a GIF coverage ratio of 133% (including regulatory reserve) and a common equity tier-1 capital ratio of 11.2% as at end-June 2019.

The Bank’s pre-tax profit improved 35% y-o-y to RM152 mil in FY Mar 2019 (FY Mar 2018: RM113 mil), chiefly attributable to stronger financing growth (+16%) and a broader net financing margin of 2.5% (FY Mar 2018: 2.4%) which more than offset higher expenses. As a result, the Bank’s return on risk-weighted assets (RoRWA) clocked in at a higher 2.0% (FY Mar 2018: 1.7%), although still deemed moderate as non-financing income constituted just 9% of its gross income. Annualised RoRWA came in at 1.9% in 1Q FY Mar 2020.

Table 1: Alliance Islamic’s issue ratings

Instrument

Rating

RM300 mil Islamic CP Programme (2019/2026)

P1

RM2.5 bil Perpetual Sukuk Programme (2019/-):

  Senior Sukuk Murabahah
  Tier-2 Subordinated Sukuk Murabahah
  Additional Tier-1 Sukuk Wakalah

 

A1/Stable
A2/Stable
BBB1/Stable

 

Analytical contact
Lim Yu Cheng, CFA, FRM
(603) 3385 2492
yucheng@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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 Alliance Islamic Bank Berhad

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