RAM Ratings reaffirms Alliance Bank’s ratings

Published on 04 October 2013

RAM Ratings has reaffirmed Alliance Bank Malaysia Berhad’s (or the Group) A1/Stable/P1 financial institution ratings and also the A2/Stable/- rating of the MTN issued under its RM1.5 billion Subordinated MTN Issuance Programme (2011/2026). The 1-notch differential between Alliance Bank’s long-term financial institution rating and issue rating reflects the subordination of the debt facility to the Group’s senior unsecured obligations.

Alliance Bank is the smallest banking group in Malaysia but remains well positioned in the SME and consumer segments. On the other hand, its Islamic and investment-banking franchises are viewed to be relatively weak. Overall, the Group’s loan quality has stayed healthy. Its gross impaired-loan (GIL) ratio had improved to 1.9% as at end-June 2013 while its credit-cost ratio came in at a low 0.1% (annualised) in 1Q FY Mar 2014. Nonetheless, we note some lending concentration on the property sector, which accounted for 55% of the Group’s total gross loans. The GIL ratios of the Group’s residential and non-residential property portfolios are also weaker than the corresponding industry averages. Given the recent strong double-digit growth in its residential and non-residential property loans, we remain cognisant of an uptick in their default rates as these loans get seasoned.

On the funding front, Alliance Bank boasts a large proportion of low-cost current- and savings-account deposits of 36%, mainly contributed by its large pool of SME customers. In addition, its loans-to-deposits ratio has been comfortably hovering around 75%–80% in the last few years and is anticipated to gradually rise to 85%. The Group has maintained a stable profit performance, as evinced by its consistent bottom-line growth and healthy profitability indicators. As at end-June 2013, the Group's common-equity tier-1 and total capital ratios came up to a strong 10.3% and 14.4%, respectively.

Media contact

Kwan Ji-Ling

(603) 7628 1115

jiling@ram.com.my