RAM upgrades ratings of AMMB Holdings and its subsidiaries

Published on 29 November 2013

RAM Ratings has upgraded the financial institution ratings of AmBank (M) Berhad, AmIslamic Bank Berhad and AmInvestment Bank Berhad, from AA3/Positive/P1 to AA2/Stable/P1. The corporate credit rating of their holding company, AMMB Holdings Berhad (together with its subsidiaries, known as the AmBank Group), has also been upgraded, from A1/Positive/P1 to AA3/Stable/P1. Concurrently, the long-term issue ratings of AmBank and its funding conduit, AmPremier Capital Berhad, have been upgraded, as have those of AmIslamic and AMMB; the ratings have a stable outlook.

The ratings of AmBank, AmIslamic, AmInvestment and AMMB were assigned a positive outlook in January 2013. The ratings have now been upgraded premised on the continued strengthening in the AmBank Group’s credit metrics, underscored by its asset quality and profitability. As the core subsidiary, AmBank’s healthy indicators have been the main driver behind the AmBank Group’s better credit fundamentals. The ratings of AmIslamic and AmInvestment reflect their strategic importance to the AmBank Group and their operational integration with AmBank under a universal-banking platform.

AMMB’s strategic partnership and technical services agreement with its major shareholder, Australia and New Zealand Banking Group (ANZ, since 2007), has facilitated the transfer of best practices in risk management and enhanced its operational capabilities. As its largest shareholder, ANZ exerts significant influence over AMMB’s strategic direction through its representatives on AMMB’s board; it is also actively involved in the AmBank Group’s operations through appointments at senior management level and technical resource support.

Through its collaboration with ANZ, the AmBank Group’s risk-management capabilities have improved. As at end-September 2013, AMMB’s gross impaired loan (GIL) ratio was a better 2.0% (end-September 2012: 2.2%). Meanwhile, its robust GIL coverage ratio of 129% as at end-September 2013 reflects the AmBank Group’s adoption of prudent impairment provision policies. With a persistent focus on risk-adjusted returns, AMMB’s profitability indicators are healthy and stack up well against its peers. Despite a moderate 9% loan growth in FY Mar 2013 and smaller contributions from investment-banking and trading income, the AmBank Group’s pre-tax profit was lifted 7% to RM2.2 billion, thanks to lower credit costs.

The AmBank Group’s loans-to-deposits ratio is relatively high although it is within its preferred range. Its funding strategy focuses on margin preservation by growing its current- and savings-account (CASA) composition and reducing asset-liability mismatches through the issuances of longer-term, capital-market funding. AMMB’s CASA deposits increased 15% y-o-y to RM16.5 billion as at end-September 2013 and now account for 19% of its deposits. AmBank, AmIslamic and AmInvestment’s capitalisation levels are sound. In aggregate, AMMB’s banking subsidiaries reported respective common-equity tier-1, tier-1 and total capital ratios of 9.5%, 11.2% and 14.9% as at end-September 2013.

The one-notch differential between AMMB’s corporate credit rating and the ratings of its banking subsidiaries reflect the former’s structural subordination as a non-operating financial services holding company, as well as its still-comfortable financial leverage ratios. AMMB’s gearing and double leverage ratios were a respective 0.27 times and 1.14 times as at end-September 2013.

Table 1: Issue ratings of AmBank, AmPremier Capital, AmIslamic and AMMB

	Rating action	Rating
AmBank (M) Berhad
RM7 billion Senior Notes Issuance Programme (2010/2040)	Upgraded	AA2/Stable
RM1 billion Negotiable Instruments of Deposit	Upgraded	AA2/Stable
RM2 billion MTN Programme (2008/2028)	Upgraded	AA3/Stable
RM500 million Non-Cumulative Perpetual Capital Securities (2009/2069)	Upgraded	A1/Stable
RM500 million Innovative Tier-1 Capital Securities Programme  (2009/2069)	Upgraded	A1/Stable
AmPremier Capital Berhad
RM500 million Subordinated Notes (2009/2069)	Upgraded	A1/Stable
AmIslamic Bank Berhad
RM2 billion Subordinated Sukuk Musharakah Programme (2011/2026)	Upgraded	AA3/Stable
RM3 billion Senior Sukuk Musharakah Programme (2010/2040)	Upgraded	AA2/Stable
AMMB Holdings Berhad
RM2 billion MTN Programme (2012/2042)  -       Senior Notes  -       Subordinated Notes	Upgraded Upgraded	AA3/Stable A1/Stable

Media contact
Joanne Kek
(603) 7628 1163
joanne@ram.com.my