Fitch Ratings has assigned Malaysia-based AmBank (M) Bhd a Long-Term Issuer Default Rating (IDR) of ‘BBB-‘ with a Stable Outlook and a Short-Term IDR of ‘F3’.
At the same time, Fitch has assigned a Viability Rating (VR) and Government Support Rating (GSR) of ‘bbb-‘.
AmBank’s Long-Term IDR is at the same level as its GSR and VR. The latter reflects Fitch’s view of the bank’s standalone credit profile, which is underpinned by its reasonable franchise as a medium-sized bank in Malaysia, as well as its moderate asset quality and risk profile. This is offset by profitability and capitalisation that lag domestic peers.
It said that Malaysia’s public health conditions have improved along with high Covid-19 vaccination rates, which have allowed the economic activity to progressively resume and support banks’ operating environment.
“We assigned AmBank’s operating environment score at ‘bbb’ with a stable outlook, in line with that of the Malaysian banking sector,” Fitch said.
AmBank is a wholly-owned subsidiary and the largest operating entity of AMMB Holdings Bhd` a medium-sized banking group in Malaysia. AmBank contributes around two-thirds of the group’s loans and had about a 4% market share of system deposits at the end-June 2021, giving it a moderate franchise as a domestic-focused bank. Its Islamic banking affiliate is a fellow subsidiary under AMMB that, unlike most domestic peers, is not consolidated under AmBank.
It said that beyond commercial banking, the group also has significant insurance, investment banking and asset management operations that benefit AmBank through economies of scope and cross-selling of products and services.
“We notch up the assigned business profile score of ‘bbb-‘ from the ‘bb’ category implied score after factoring in the group benefits,” it said.
AmBank’s risk profile of ‘bbb’ is above what its business profile would indicate, as its underwriting standards and asset quality have historically been on par with the system average. Its non-performing loan (NPL) ratio has benefited from government debt relief measures amid the Covid-19 pandemic and has hovered between 1.5%-1.7% since end-2019 (end-June 2021: 1.5%).
We expect the ratio to peak in 2022 as relief programmes roll off, but for the four-year average of the asset-quality core, the metric to remain at around 2% for the next few years. Our outlook on asset quality is stable, reflecting adequate headroom to withstand a degree of deterioration that we expect from the lingering risks.
