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RAM Ratings affirms A1/P1 ratings of Alliance Bank and Alliance Islamic
Published on 29 Nov 2023.
RAM Ratings has affirmed the A1/Stable/P1 financial institution ratings (FIR) of Alliance Bank Malaysia Berhad (Alliance Bank or the Group) and Alliance Islamic Bank Berhad (Alliance Islamic). The ratings of the entities’ sukuk/debt facilities have also been affirmed (Table 1). Concurrently, we have withdrawn the FIR of Alliance Investment Bank Berhad (Alliance Investment) at its request. At the time of the withdrawal, Alliance Investment carried A1/Stable/P1 ratings.
The affirmations reflect our view that Alliance Bank’s credit metrics will remain healthy, notwithstanding some deterioration in asset quality. Loss absorption buffers in the form of capitalisation and loan loss coverage stayed strong and are anticipated to be sufficient to weather further challenges arising from a still uncertain operating environment. Alliance Bank reported a common equity tier-1 capital ratio (without transitional arrangements) of 13.3% as at end-June 2023 (industry: 15.0%), down from 14.6% as at end-March 2022 due to robust loan growth and transfers made from retained earnings to regulatory reserves. Provisioning reserves were still strong at 120%.
Alliance Bank’s gross impaired loan (GIL) ratio jumped to 2.6% as at end-June 2023 (industry: 1.8%; end-March 2022: 1.8%), mainly because of the crystallisation of delinquencies after vulnerable retail and small and medium-size enterprise (SME) borrowers came under pressure from the resumption of loan repayments and relatively higher interest rates. A particularly large corporate account turned impaired, contributing to a 22-bp increase in the GIL ratio. Nonetheless, the overall metric is still sound and the Group does not expect it to deteriorate materially from the current level after some stabilisation seen post-June 2023.
Underpinned by a commendable proportion of current and savings account and individual deposits, Alliance Bank’s funding and liquidity profile is strong, thanks to its established SME and cash management franchise. This, coupled with a rich pool of high-yielding loans, supports the Group’s broad net interest margin (FY Mar 2023: 2.67%). Pre-tax profit rose 7% to RM887 mil in fiscal 2023 owing to higher interest income and lower impairment provisions, though partly offset by a dip in investment income.
Earlier this year, the Group announced its four-year Acceler8 2027 strategy that seeks to expand its focus on consumer banking while keeping its SME business a key strength. Corporate banking will also play an increasingly important role, in line with Alliance Bank’s intention to support businesses throughout their life cycles. Consumer and SME banking contributed fairly evenly to loan growth of 7.9% in FY Mar 2023, in contrast to the SME-led growth in the last few years.
The financial institution ratings of the Group’s core subsidiary, Alliance Islamic, are equated to Alliance Bank’s, considering its strategic importance to the Group.
Table 1: Ratings of entities under Alliance Banking Group
Analytical contacts
Lee Yee Von
(603) 3385 2503
yeevon@ram.com.my
Wong Yin Ching, CFA
(603) 3385 2555
yinching@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2023 by RAM Rating Services Berhad
Rating Rationale: Alliance Bank Malaysia Berhad
