FW: MARC ASSIGNS FINANCIAL INSTITUTION RATINGS OF A+/MARC-1 TO KENANGA INVESTMENT BANK; OUTLOOK STABLE

 

 

P R E S S  A N N O U N C E M E N T

FOR IMMEDIATE RELEASE

 

MARC ASSIGNS FINANCIAL INSTITUTION RATINGS OF A+/MARC-1 TO KENANGA INVESTMENT BANK; OUTLOOK STABLE

 

MARC has assigned long-term and short-term financial institution (FI) ratings of A+ and MARC-1 to Kenanga Investment Bank Berhad (Kenanga) with a stable outlook. The ratings are mainly premised on Kenanga’s established track record in investment banking activities as well as its position as a medium-sized investment bank and moderate profitability metrics.

 

Kenanga is primarily involved in three key business segments: stockbroking, investment banking and investment management, accounting for 48%, 37% and 10% respectively of consolidated revenue of RM343.5 million for 1H2017. The bank is the largest retail stockbroker domestically, with a market share of about 17% as at date. This position has been built largely on the back of a wide network of 29 branches and a sizeable remisier base of about 800 as at end-June 2017. MARC notes that the bank has strengthened its online trading platform through an equal partnership with Rakuten Securities Inc, Japan’s second-largest securities brokerage firm, to set up a joint-venture company. Since its launch in May 2017, this trading platform has attracted more than 3,000 clients.

 

The bank’s stockbroking revenue rose by 23% y-o-y to RM164.2 million for 1H2017 on improved market conditions and higher retail participation. Its share margin financing continues to make up a sizeable portion of its total loan portfolio, which registered a 2.3% y-o-y growth for 1H2017. The rating agency notes that Kenanga’s share margin financing accounted for about 173.8% of total shareholders’ funds as at end-June 2017, lower than the maximum limit of 200.0% allowed by the regulator. This implies that future loan growth in share margin financing may be constrained by the limit. Kenanga’s overall loan quality has remained sound, with gross impaired loans ratio standing at 0.12% as at end-June 2017 compared to the industry average of 5.1%.

 

Kenanga’s investment banking revenue rose by 12.9% y-o-y to RM129.2 million for 1H2017, supported partly by higher fees from the advisory segment in which it has a strong market position arising from its status as a standalone investment bank. Nonetheless, Kenanga does not benefit from being part of a large banking group unlike many of its peers which can leverage on broader financial services. Its investment management business remains small, although assets under management (AUM) growth has been healthy at 6% compounded annual growth rate over the last three years, standing at RM7.5 billion as at end-2016. For 1H2017, the investment management segment’s revenue improved to RM34.3 million with losses before tax narrowing to RM4.1 million.

 

For 1H2017, Kenanga’s total operating income improved by 13.4% y-o-y to RM230.5 million. However, with a cost-to-income ratio of 92%, largely due to substantial commission expenses and costs of maintaining its branch network, net profit remained modest at RM6.2 million. Its Common Equity Tier 1 (CET1) ratio of 26.7% as at end-June 2017 remains strong, well above the minimum regulatory requirement of 5.75%. The bank has also set up a Basel III-compliant Tier 2 Subordinated Notes programme of RM250 million in 2017.

 

In terms of funding and liquidity profile, Kenanga relies on short-term wholesale customer deposits, with deposits from non-bank financial institutions and business enterprises collectively accounting for 71% of total funding as at end-June 2017. The high funding concentration poses some liquidity risk to the bank, although this is mitigated by sizeable liquid assets of about 36% of total asset. Liquidity coverage ratio stood at 127%, higher than the minimum 100% required to be complied by early-2019.

 

The stable outlook reflects MARC’s expectation that Kenanga will maintain its current position in investment banking activities and financial performance that are commensurate with the rating. Any improvement in rating and/or outlook will be driven by higher profitability metrics, arising from cost rationalisation measures or other initiatives.

 

 

Contacts: Joan Leong, +603-2717 2934/ joan@marc.com.my; Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my

 

September 29, 2017

 

[This announcement is available in the MARC corporate homepage at http://www.marc.com.my]

----   DISCLAIMER    ----

 

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2017 Malaysian Rating Corporation Berhad

 

IMPORTANT NOTICE:
The information contained in this email and/or any attachment hereto is strictly confidential and privileged. If you are not the intended recipient, and/or have received this email in error, you must not copy, disseminate or disclose the contents of this message and/or any attachment to any other person. Please notify the sender and delete this message and any attachment from your system. Malaysian Rating Corporation Berhad (“MARC”) accepts no liability in respect of prohibited and unauthorised use by an unintended addressee or recipient. Any opinion, view or other information in this message and/or any attachment hereto which does not relate to the official business of MARC is that of the individual sender. Although this email and/or any attachment is believed to be free of any virus or other defect which may affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus-free and MARC accepts no responsibility for any loss or damage arising in any way from the use thereof.