Published on 22 Nov 2019.
RAM Ratings has reaffirmed Alliance Investment Bank Berhad’s (the Bank) A1/Stable/P1 financial institution ratings, given the Bank’s strategic role as Alliance Bank Malaysia Berhad’s (the Group) investment banking and stockbroking arm. Support from Alliance Bank is expected to be forthcoming should the need arise, so long as the Bank remains wholly owned by the Group.
Operating under a universal banking model, Alliance Investment leverages on its parent’s larger balance sheet to underwrite deals that exceed its standalone limits. Nonetheless, the Bank remains a small player in the investment banking space, accounting for a share of less than 2% of Malaysian debt and equity capital market. The Bank’s stockbroking business also lags that of peers, with a market share of just 1% by trading value.
As with other investment banks, Alliance Investment’s earnings are inherently volatile, being subject to the vagaries of the market. The Bank’s pre-tax profit was significantly lower at RM7.9 mil in FY Mar 2019 (FY Mar 2018: RM29.2 mil) due to a RM23.7 mil impairment on goodwill for its stockbroking business amid weaker business prospects. While further goodwill impairment cannot be ruled out, remaining goodwill for the stockbroking business was only RM5.3 mil as at end-June 2019. In 1Q FY Mar 2020, the Bank slipped into the red with a pre-tax loss of RM14.7 mil due to a substantial impairment charge of RM24.7 mil on a recently defaulted unrated bond.
That said, the Bank’s pre-impairment profits were higher y-o-y in both FY Mar 2019 and 1Q FY Mar 2020, thanks to a larger trading gain in FY Mar 2019 and stronger interest income from an enlarged investment portfolio in both periods. Alliance Investment remains overcapitalised, its common equity tier-1 capital ratio standing at 82% as at end-June 2019.
Tan Shu Xuan
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Ratings on Alliance Investment Bank Berhad