RAM Ratings: No immediate rating impact from AFFIN Bank’s planned divestment of asset management unit

Published on 31 Jan 2022.

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AFFIN Bank Berhad’s (the Group, rated AA3/Negative/P1) proposed disposal of its 63% interest in Affin Hwang Asset Management Berhad (AHAM) – held via Affin Hwang Investment Bank Berhad (rated AA3/Negative/P1) – will not affect its ratings or the ratings of its banking subsidiaries in the immediate term. We anticipate the transaction to strengthen the Group’s loss absorption capacity through higher capitalisation, although reduced business diversity and the loss of a stable source of fee income will be balancing factors. 

AFFIN Bank’s intention to sell its entire shareholding to CVC Capital Partners, a global private equity firm, is in line with the Group’s transformational initiatives to prioritise its core banking business. Subject to regulatory approval, the planned divestiture is targeted to be completed by 3Q 2022.

Based on purchase cash consideration of RM1.4 bil, the corporate exercise will yield a significant disposal gain of RM1.0 bil and boost the Group’s common equity tier-1 capital ratio by 289 bps to a pro forma 16% (without transitional arrangements). This will better enable it to withstand asset quality headwinds in view of the Group’s susceptibility to chunky impaired loans as well as expected higher delinquencies when loan relief measures are lifted. We assume however, that some of the gains from the divestment will be returned to shareholders through dividends. We will continue to monitor developments in this regard and reassess the impact when more details are made known.

Ranked among the largest three asset management players locally, AHAM’s assets under management stood at around RM81 bil as at end-September 2021. Its contribution to AFFIN Bank is material, accounting for roughly 16% of the Group’s net profit on average over the last three years. AFFIN Bank intends to leverage on its enlarged capital base to accelerate loan growth, aiming to expand its financing base by a compounded annual growth rate of about 16% over the next four years. We are watchful of such an aggressive growth strategy.

RAM retained AFFIN Bank’s long-term rating on a negative outlook in October 2021 reflecting concerns over the Group’s weaker-than-peer loan quality and profitability metrics. We are cognisant of ongoing measures to turn around its business profile and financial performance, but the full benefit of such measures will take time. The ratings are supported by the Group’s sound capitalisation and backing from its ultimate shareholder, Lembaga Tabung Angkatan Tentera.

Analytical contacts
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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Ratings on AFFIN Bank Berhad