Published on 29 Nov 2022.
RAM Ratings has reaffirmed the A1/Stable/P1 financial institution ratings of Alliance Bank Malaysia Berhad (Alliance Bank or the Group) and its subsidiaries. The ratings of the entities’ sukuk/debt facilities have also been reaffirmed (Table 1). Concurrently, we have withdrawn the P1 rating of the Group’s RM500 million Commercial Papers Programme (2015/2022) following the maturity and full redemption of the facility on 25 November 2022.
The reaffirmations reflect our view that Alliance Bank’s credit metrics will remain commensurate with its current ratings despite prevailing macroeconomic headwinds. The Group boasts strong loss absorption buffers in the form of capitalisation, loan loss coverage and pre-provision earnings, which will be more than sufficient to withstand asset quality challenges brought about by rising inflationary pressures and interest rates.
Alliance Bank’s gross impaired loan (GIL) ratio eased considerably to 1.8% as at end-June 2022 (industry: 1.8%; end-March 2021: 2.3%), primarily thanks to the reclassification of a larger number of impaired loans as performing amid intensified collection efforts. Loans under financial assistance (5% as at end-August 2022) and earlier efforts to tighten underwriting criteria for its problematic Alliance One Account portfolio, also contained the formation of new impairments.
Backed by healthy earnings accretion, Alliance Bank’s post-dividend common equity tier-1 capital ratio stood at a robust 14.5% as at end-June 2022 (without transitional arrangement). The prudent build-up of provisioning reserves since the start of the pandemic kept the Group’s GIL coverage at a sturdy 133% (with regulatory reserves). Coupled with a strong earnings generation capacity, the Group has sufficient headroom to withstand lingering asset quality headwinds. On this note, Alliance Bank’s pre-tax profit jumped 71% y-o-y to RM827 mil in FY Mar 2022 (FY Mar 2021: RM484 mil) on the back of significantly lower impairment charges (-53%) and a wider margin (+17 bps).
On 31 March 2022, Alliance Investment Bank Berhad completed the transfer of its corporate finance, equity capital market and debt capital market businesses to Alliance Islamic Bank Berhad. This was followed by the disposal of its stockbroking business to Philip Capital Sdn Bhd, which was concluded on 30 July 2022. These exercises are in line the Group’s aim to reprioritise growth in the consumer, small-medium enterprise and Islamic banking segments in view of the relatively sub-scale operation of its investment banking unit in the past. We expect the corporate restructuring to improve the Group’s capital and operational efficiency going forward.
The financial institution ratings of the Group’s core subsidiaries, Alliance Islamic and Alliance Investment, are equated to Alliance Bank’s, considering their strategic importance to the Group.
Wong Yin Ching, CFA
(603) 3385 2555
Tan Shu Xuan
(603) 3385 2497
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Rating Rationale: Alliance Bank Malaysia Berhad
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