RAM reaffirms AmBank Islamic’s ratings
KUCHING: RAM Ratings has reaffirmed AmBank Islamic Bhd’s AA2/Stable/ P1 financial institution ratings ( FIRs), alongside the ratings of the Bank’s outstanding debt facilities.
The reaffirmed FIRs reflect those of AmBank ( M) Berhad (rated AA2/Stable/ P1), the core banking subsidiary of AMMB Holdings Bhd.
AmBank Islamic is a highly strategic entity given its role as the Group’s Islamic banking arm. The Bank’s operations are strongly linked with that of its sister banks, AmBank and AmInvestment Bank Bhd (rated AA2/Stable/P1), under a universal banking model. The Bank is expected to receive ready group support if required.
AmBank Islamic’s gross impaired financing ( GIF) ratio deteriorated to two per cent as at end- September 2018 from 1.8 per cent ( end- March 2017), mainly attributed to an oil and gas-related borrower and a lumpy real estate account.
AmBank Islamic’s financing portfolio grew seven per cent (annualised) in 1HFY19, driven by a strong emphasis on SME and residential property financing, while vehicle financing continued to contract.
The bank’s GIF coverage ratio – inclusive of regulatory reserves – stood at an adequate 99 per cent as at end- September 2018.
However, AmBank Islamic’s credit cost ratio increased to 0.5 per cent (annualised) in 1HFY19 amid lower recoveries, higher impairment allowances due to a newly impaired account, and stronger financing growth.
AmBank Islamic’s deposit funding capabilities still lag peers’, with its financing- to- deposits ratio at a high 100 per cent as at end- September 2018. Including non- deposit funding, the Bank’s financing-to-funds ratio stood at 86 per cent.
The proportion of the bank’s current and savings account ( CASA) deposits has gained traction and is now more in line with the industry’s.
AmBank Islamic’s liquidity coverage ratio and net stable funding ratio are healthy, with both comfortably above 100 per cent. As its funding and liquidity are managed at group level, the Bank is expected to receive ready liquidity and funding support if required.
“AmBank Islamic’s pre-tax profit climbed 23 per cent y- o-y to RM169 million in 1HFY19 owing to lower intercompany charges and higher net financing income that more than offset heftier impairment charges.
“However, the bank’s profitability is still soft with an annualised return on riskweighted assets of 1.3 per cent. This is partly attributed to a low proportion of non- financing income (nine per cent of gross income), which in turn reflects its less diversified revenue base.
“AmBank Islamic’s capitalisation level is sound, the bank’s common equity tier-1 and total capital ratios standing at 11.4 and 16.2 per cent as at endSeptember 2018, respectively.”
Day 1 of the adoption of Malaysian Financial Reporting Standards 9 on April 1, 2018 saw the ratios increase by 10 bps, owing to a partial release of regulatory reserves built up earlier.