Published on 02 Apr 2021.
The planned goodwill write-down and proposed private placement by AMMB Holdings Berhad (AMMB or the Group) will not affect its ratings in the immediate term. The goodwill impairment does not affect the Group’s capital ratios and its liquidity position. While credit positive, the planned private placement is not sufficient to restore the Group’s loss absorption buffer to pre-1Malaysia Development Berhad (1MDB) settlement level.
RAM Ratings in early March downgraded AMMB’s ratings to AA3/Stable/P1 from AA2/Stable/P1 to reflect the adverse financial impact of the RM2.83 bil global settlement with the Government of Malaysia, in relation to the Group’s historical dealings with 1MDB.
AMMB’s goodwill arose from legacy corporate exercises and acquisitions. Still subject to audit review, the goodwill assessment is focused on certain lines of business, namely its conventional commercial and investment banking operations which have an aggregate goodwill of RM1.9 bil. With the Group incurring the RM2.83 bil provision in 4Q FY Mar 2021, the one-off goodwill impairment charge will catapult the Group into an even larger loss. Nonetheless, its capitalisation – a key rating consideration – will not be affected as goodwill is excluded from the calculation of regulatory capital ratios. Given the non-cash nature of this exercise, AMMB’s liquidity position will also remain intact.
Separately, AMMB is proposing to undertake a private placement to mitigate the impact of capital erosion attributed to the global settlement. Scheduled to be completed by 2Q 2021, the fresh capital could add approximately 70 basis points to the Group’s common equity tier-1 (CET-1) capital ratio. This will lift the metric to around 12% as at end-December 2020 on a pro forma basis (adjusted for the settlement and including 3Q FY Mar 2021 profit). If successfully implemented, the placement will strengthen the Group’s loss absorption buffer, enabling it to better withstand anticipated asset quality headwinds and elevated credit costs affecting Malaysian banks in general. Although the pro forma CET-1 capital ratio will still be below the pre-settlement level, the proposed capital raising plan underscores the management’s strong commitment to capital restoration.
Wong Yin Ching, CFA
(603) 3385 2555
(603) 3385 2577
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Ratings on AMMB Holdings Berhad