RAM Ratings assigns A1/Stable/P1 ratings to Alliance Islamic Bank

KUCHING: RAM Ratings has assigned A1/Stable/P1 ratings to Alliance Islamic Bank Bhd (Alliance Islamic), the Islamic banking subsidiary of Alliance Bank Malaysia Bhd (Alliance Bank).

It noted, the rating is anchored by Alliance Islamic’s importance as the Islamic banking arm of the Group, as well as the support it receives from Alliance Bank.

Incorporated in 2007, Alliance Islamic had been set up to house the carved- out Islamic banking operations of its parent.

“As one of the smallest Islamic banks in Malaysia, Alliance Islamic faces significant competition from its larger peers.

“In this regard, the bank’s ability to build on the group’s network of customers for cross- selling initiatives supports its business growth. Under a universal-banking platform, Alliance Islamic reaps economies of scale by leveraging on Alliance Bank’s infrastructure, risk-management framework and branch network,” RAM Ratings said.

With a gross impaired- financing (GIF) ratio of 0.7 per cent and a GIF coverage ratio of 164 per cent as at end- September 2016, the ratings agency believed that Alliance Islamic enjoys healthy asset quality.

“Although this may weaken as the bank favours facilities with higher risk-adjusted returns, any such deterioration is expected to be manageable,” it added.

As the group’s personal-financing facilities are primarily booked under Alliance Islamic, the bank has a relatively large proportion (14 per cent) of personal-financing facilities.

“The credit risks of personal financing exposures are managed holistically at group level; in this respect, personal financing facilities contribute to only three per cent of the group’s financing exposure,” RAM Ratings said.

Meanwhile, it noted, financing income has traditionally been the main component of Alliance Islamic’s earnings with contributions from non-financing-income sources only accounting for about six per cent of the bank’s gross income in first half of the financial year 2017 (1HFY17).

“The bank’s capital base is of high quality, primarily consisting of common- equity tier-1 ( CET-1) capital.

“Boosted by a RM100 million injection from its parent in December 2015, the bank’s CET-1 capital ratio had strengthened to 13.2 per cent as at end- September 2016 (11 per cent as at end-March 2015),” it added.