30 December 2015

RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings of AmBank (M) Berhad (AmBank or the Bank), the core banking subsidiary of AMMB Holdings Berhad (AMMB or the Group, rated AA3/Stable/P1). Concurrently, the issue ratings of the Bank and its funding conduit, AmPremier Capital Berhad, have also been reaffirmed.

AmBank's ratings are anchored by the Bank's sound asset quality metrics along with its healthy capitalisation, although its profitability indicators have trended downwards in recent times. The ratings also consider AmBank's mid-sized domestic franchise and its relatively weak funding profile.

Bank Negara Malaysia recently imposed a RM53.7 million penalty on AMMB for regulatory non-compliance by AmBank and AmBank Islamic Berhad (rated AA2/Stable/P1). The Group is also required to set aside an average of RM25 million per year for 4 years to invest in systems, infrastructure and training. We do not expect the Bank's overall credit metrics to be materially affected by this incident. The Group does not envisage further fines or penalties in relation to this, and has taken measures to improve its governance structure.

AmBank continues to maintain its sound asset quality profile, underlined by its prudent risk management policies. While the Bank reported an uptick in its gross impaired-loan (GIL) ratio from 1.6% as at end-March 2015 to 1.8% as at end-September 2015, this was mainly due to a lumpy impaired real estate loan which was subsequently paid off as well as a contracting loan base. Aided by its intensified collection efforts and a healthier retail lending portfolio, AmBank continue to record a net impairment write back in 1H FY Mar 2016. The Bank's capitalisation also remains healthy; its common-equity tier-1 capital ratio had improved to 10.7% as at end-September 2015 (end-March 2014: 9.6%), driven by profit accumulation while its risk-weighted assets stayed relatively unchanged.

AmBank's strengths, however, are moderated by its mid-sized domestic franchise and weaker funding profile, albeit having improved over the years. The Bank's loan-to-deposit ratio remained elevated at 94.7% as at end-September 2015. While its proportion of cheap funding in the form of current- and savings-account deposits (22%) still stayed lower than the industry average (25.4%), its efforts to increase these deposits have gained traction. To improve funding stability and reduce asset-liability mismatches, AmBank has also issued longer-term debt securities. The Bank further boasts a healthy liquidity position, with a Basel III liquidity coverage ratio of 144%.

AmBank's profitability indicators have been weighed down by its shrinking loan book and continuous margin compression, although the latter is an industry phenomenon. This was brought about by the keen competition in the market as well as its ongoing portfolio rebalancing strategy to reduce its large vehicle financing exposure. The Bank's annualised return on risk-weighted assets slipped to 1.8% in 1H FY Mar 2016 (FY Mar 2015: 2.2%). AmBank's profit performance is expected to remain muted given the tougher operating environment.

Table 1: Issue ratings of AmBank and AmPremier Capital

Rating

AmBank (M) Berhad

RM1 billion Negotiable Instruments of Deposit

AA2/Stable

RM2 billion MTN Programme (2008/2028)

AA3/Stable

RM500 million Non-Cumulative Perpetual Capital Securities (2009/2069)

A1/Stable

RM500 million Innovative Tier-1 Capital Securities Programme (2009/2069)

A1/Stable

RM7 billion Senior Notes Issuance Programme (2010/2040)

AA2/Stable

RM4 billion Tier-2 Subordinated Notes Programme (2013/2043)

AA3/Stable

AmPremier Capital Berhad

RM500 million Subordinated Notes (2009/2069)

A1/Stable

-Ends-

Media contact
Chew Wei Li
(603) 7628 1025
weili@ram.com.my

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