RAM Ratings reaffirms Alliance Financial Group' ratings, with stable outlook

Published on 09 November 2011
RAM Ratings has reaffirmed the respective long- and short-term ratings of Alliance Financial Group Berhad’s (“AFG” or “the Company”) RM300 million Commercial Papers/Medium-Term Notes Programme (2006/2013), at A2 and P1; the long-term rating has a stable outlook. The ratings depend on the credit strength of its core subsidiary, Alliance Bank Malaysia Berhad (“Alliance Bank”), as well as AFG’s company-level financial metrics. Alliance Bank is the smallest among the 8 domestic banking groups in Malaysia; it carries A1/Stable/P1 financial institution ratings from RAM Ratings.

AFG’s financial performance relies heavily on dividends from its subsidiaries, which account for the bulk of its revenue. In this regard, stable dividends from Alliance Bank continue to underpin AFG’s sound financial profile. Backed by more robust dividend income, AFG recorded a higher return on capital employed of 6.6% as at end-March 2011 (end-March 2010: 6.1%). Its financial leverage compares well against that of its rated peers; the Company retained its net-cash position as at end-June 2011. At the same time, its gearing and double-leverage ratios remained stable at a conservative 0.33 times and 0.97 times, respectively.
Alliance Bank maintains its franchise in consumer loans as well as lending to small and medium-sized enterprises; these account for a combined 76% of its loans. The latter was one of the key drivers of its 4.8% loan growth in FYE 31 March 2011. Moving forward, Alliance Bank’s asset-quality indicators are expected to remain stable and in line with the industry averages, as evidenced by its gross impaired-loan ratio of 3.0% as at end-June 2011. At the same time, its capitalisation remained healthy, with a tier-1 risk-weighted capital-adequacy ratio of 11.3% (end-March 2010: 11.1%).

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Amy Lo
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amy@ram.com.my