Published on 28 Aug 2018.
RAM Ratings has reaffirmed the AA3/Stable/P1 financial institution ratings of AFFIN Bank Berhad (the Group). At the same time, we have reaffirmed the respective AA3 and A1 ratings of the senior and subordinated notes under the Group's RM6.0 billion MTN Programme as well the A3 rating of its RM3.0 billion Additional Tier-1 Capital Securities Programme. The issue ratings also have a stable outlook.
The reaffirmation of the ratings reflects expected parental support from AFFIN Bank's majority shareholder, Lembaga Tabung Angkatan Tentera, a government statutory body established to provide retirement and welfare benefits to the Malaysian armed forces. The ratings consider the Group's strong loss absorption buffers, in the form of its capitalisation and loan loss coverage ratio (including regulatory reserves). The ratings are, however, still moderated by the Group's position as one of the smallest banks in Malaysia as well as its weak profitability.
AFFIN Bank became the apex operating holding company of the AFFIN banking group after its acquisition of its former holding company AFFIN Holdings Berhad's (AHB) equity interest in AHB's subsidiaries on 16 October 2017. Notably, AFFIN Bank's non-interest income has improved greatly on account of the inclusion of AFFIN Hwang Investment Bank Berhad's healthy fee income after the Group's reorganisation.
The Group's loan book expanded by a quicker 4.3% y-o-y in FY Dec 2017, subsequent to flattish growth the previous year as the Group exited some lower-yielding corporate loans. Growth had primarily stemmed from residential mortgages, hire-purchase loans and loans for the purchase of securities.
As at end-March 2018, AFFIN Bank's gross impaired-loan (GIL) ratio stood at an elevated 2.5% (end-December 2016: 1.6%) due to the impairment of several lumpy accounts. Nevertheless, we derive comfort from its still healthy GIL coverage ratio (including regulatory reserves) of 100.4% as well as its strong capitalisation. The Group's common equity tier-1 and total capital ratios clocked in at a respective 12.0% and 17.3% as at the same date.
AFFIN Bank's pre-tax profit, which shrank by about 6% to RM697.7 million in FY Dec 2017, continues to be weighed down by higher personnel costs and impairment charges, in addition to the Group's thin margins by virtue of a smaller proportion of low-cost current and savings account deposits (16%; industry: 27%). Thus, the Group's profitability remains relatively weak, with an annualised return on risk-weighted assets of 1.55% in 1Q FY Dec 2018.
Analytical contact
Liang Huey Jean
(603) 7628 1124
jean@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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