Published on 11 Jan 2022.
RAM Ratings has reaffirmed the AA3/Stable/P1 corporate credit ratings of AMMB Holdings Berhad (AMMB or the Group) and the financial institution ratings of its subsidiaries, AmBank (M) Berhad, AmBank Islamic Berhad and AmInvestment Bank Berhad. The ratings of debt securities issued by AmBank and AmBank Islamic have also been reaffirmed (Table 1). Despite AMMB’s structural subordination as a non-operating holding company, its ratings are equated to those of its banking entities to reflect its debt-free status at holding company level.
The reaffirmations are based on our view that AMMB will be able to preserve sound credit metrics over the intermediate term. As pandemic-related relief measures are obscuring underlying credit risks, impairments may start to crystallise when these are lifted. We believe AMMB’s healthy pre-provision earnings and sturdy loan loss coverage will serve as strong buffers for loss absorption.
Pre-pandemic, the Group’s loan quality was healthy, faring favourably against some larger banking groups. Its gross impaired loan (GIL) ratio eased to 1.4% as at end-September 2021 (end-March 2020: 1.7%; industry: 1.6%), helped by ongoing assistance schemes and proactive collection efforts. AMMB has prudently built up a large pool of provisioning reserves through management overlay as reflected in its robust GIL coverage of 151% (industry: 121%). Total lending under relief was around 29% as at mid-November 2021, roughly similar to most banks (average of eight banking groups: 28%).
A sizeable global settlement provision in March 2021 noticeably impacted AMMB’s capital levels but we note that measures to rebuild capital are firmly underway. The Group’s common equity tier-1 capital ratio improved to a reported 12.7% as at end-September 2021 (end-March 2021: 11.3%), driven by a RM825 mil private placement completed in April 2021 and profit accretion. Without transitional arrangement – an optional forbearance measure – the metric stood at a lower 11.6% (end-March 2021: 10.4%). Although still subject to regulatory approval, an ongoing corporate divestiture exercise for its general insurance arm is envisaged to provide a 25-bp capital uplift. Overall, the Group’s capitalisation is deemed moderate, ranking below its peers (industry average: 14.4%).
Primarily due to the RM2.8 bil settlement, and the impairment of goodwill on legacy corporate exercises and acquisitions amounting to RM1.9 bil, the Group reported a pre-tax loss of RM3.5 bil in FY Mar 2021 (FY Mar 2020: RM1.8 bil pre-tax profit). As with all banks, AMMB’s performance was also weighed down by heftier provisions. Pre-provision profit accretion however is considered healthy, thanks to disciplined cost management and a steady net interest margin (~1.8%-1.9%). Earnings for 1H FY Mar 2022 rebounded by 21% y-o-y to RM973.4 mil because of broader margins, lower cost outlays and a smaller modification loss. Elevated credit costs, albeit lower, and the one-off prosperity tax will pressure its bottom line in FY Mar 2022 but the impact is expected to be manageable.
AMMB Holdings Berhad
AmBank (M) Berhad
AmBank Islamic Berhad
AmInvestment Bank Berhad
Chow Kah Mun
(603) 3385 2501
Wong Yin Ching, CFA
(603) 3385 2555
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Published by RAM Rating Services Berhad
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Rating Rationale: AMMB Holdings Berhad & AmBank (M) Berhad
Rating Rationale: AmBank Islamic Berhad
Rating Rationale: AmInvestment Bank Berhad
Ratings on AMMB Holdings Berhad