RAM reaffirms AmBank’s ratings, revises outlook to positive from stable

Published on 25 January 2013

RAM Ratings has reaffirmed AmBank (M) Berhad’s (“AmBank” or “the Bank”) respective long- and short-term financial institution ratings at AA3 and P1. The issue ratings of AmBank and AmPremier Capital Berhad – a special-purpose vehicle set up to issue subordinated notes – have also been reaffirmed (refer to Tables 1 and 2). Concurrently, the outlook on all the long-term ratings has been revised, to positive from stable.

Table 1: AmBank’s issue ratings

Instrument	Rating action	Rating	Outlook
RM7 billion Senior Notes Issuance Programme	Reaffirmed	AA3	Positive
RM1 billion Negotiable Instruments of Deposits	Reaffirmed	AA3	Positive
RM2 billion Medium-Term Notes Programme	Reaffirmed	A1	Positive
RM500 million Non-Cumulative Perpetual Capital Securities	Reaffirmed	A2	Positive
RM500 million Innovative Tier-1 Capital Securities Programme	Reaffirmed	A2	Positive
Note: A 1-notch differential between AmBank’s long-term financial institution rating and its issue rating reflects the subordination of the debt facility to the Bank’s senior unsecured obligations. A 2-notch rating differential reflects the deeply subordinated nature and embedded interest-deferral feature of the rated instrument.

Table 2: AmPremier Capital Berhad’s issue ratings

Instrument	Rating action	Rating	Outlook
RM500 million Subordinated Notes	Reaffirmed	A2	Positive
Note: The Subordinated Notes carry the same rating as AmBank’s Non-Cumulative Perpetual Capital Securities given that AmBank’s payment obligations to AmPremier Capital Berhad under an inter-company loan - which will be used to settle coupon payments on the Subordinated Notes - rank pari passu with the Non-Cumulative Perpetual Capital Securities.

The positive rating outlook is premised on AmBank’s improving credit metrics as it continues to reap the benefits from the risk-management best practices and capabilities of Australia and New Zealand Banking Group Limited (“ANZ”). The latter is AMMB Holdings Berhad’s (“the Group”) strategic partner as well as largest shareholder, with a 23.8%-stake; this represents ANZ’s largest foreign investment to date. Notably, ANZ has been actively participating in the strategic direction and day-to-day operations of the Group, through board representation and key management appointments. The Group operates in an integrated fashion, with a common senior management team, risk and governance management philosophies and tools.

AmBank’s lending portfolio now has a more balanced mix with its retail and non-retail loans at a ratio of 51:49 as at end-September 2012 (end-September 2007: 74:26). AmBank’s asset quality continued to improve as its gross impaired loans (“GILs”) declined to RM1.6 billion as at end-September 2012, thus easing its GIL ratio to 2.6% (end-March 2011: RM2.1 billion and 3.7%). The Bank recorded net impairment write-backs in 1H FY Mar 2013 as a result of strong recoveries; for the full year, the Bank expects its credit-cost ratio to come in at a modest 0.25%. Reflecting its prudent provisioning policy, AmBank’s GIL coverage ratio has been strengthening over the years, standing at a robust 110% as at end-September 2012.

On the funding front, efforts have been channelled towards managing the stability and diversity of the Bank’s funding sources, although depositor concentration remains. On a more positive note, AmBank has been gaining traction in the expansion of its low-cost, sticky current- and savings-account (“CASA”) deposits. As at end-September 2012, CASA deposits made up 15.1% (end-March 2009: 10.6%) of the Bank’s customer deposits, thus gradually narrowing the gap between AmBank and the industry average (about 25%). While the Bank’s loans-to-deposits ratio of 92.5% is at the higher end, we note that RM2.9 billion of long-dated senior notes have been issued to date to lengthen its funding maturities. 

Meanwhile, AmBank’s strategy of expanding profitably and its focus on risk-adjusted returns have worked well for its bottom line. Despite moderate but targeted loan growth, the Bank’s healthy asset quality has helped shore up its profitability, with a robust annualised return on assets of 2.1% 1H FY Mar 2013. Relative to its risk profile and financial performance, AmBank’s capitalisation levels are still considered sound. As at the same date, the Bank’s tier-1 and overall risk-weighted capital-adequacy ratios stood at 10.2% and 14.3%, respectively. RAM will be monitoring the sustainability of AmBank’s improved credit fundamentals through the next few quarters before considering an upgrade for the Bank’s long-term ratings.

Media contact
Lim Yu Cheng
(603) 7628 1188
yucheng@ram.com.my