RAM Ratings has assigned a short-term rating of P1 to Alliance Bank Malaysia Berhad’s proposed RM500 mil Commercial Papers Programme. Concurrently, the rating agency has reaffirmed the Group’s financial institution ratings of A1/Stable/P1 and the ratings of its existing debt facilities.
The agency said Alliance Bank’s key credit metrics have stayed largely intact since its last review in January 2022. As with other industry players, its underlying asset quality remains obscured by ongoing repayment assistance. Loans benefiting from relief measures more than halved to 13.6% of its loan portfolio as at mid-May 2022 from mid-November 2021, albeit still above the industry average of 8.4%. This, coupled with intensified collection efforts, lowered the group’s gross impaired loan (GIL) ratio to 1.8% as at end-March 2022 (end-March 2021: 2.3%), bringing it closer to the industry’s 1.5%.
While some bad debts may crystalise in the coming months, Alliance Bank has strong loss-absorption buffers to tide over asset quality headwinds. Its capital position remained robust, with a post-dividend common equity tier-1 capital ratio of 16.0% as at end-March 2022 (without transitional arrangement: 14.6%). With sizeable management overlays in FY Mar 2021 and FY Mar 2022, the Group has fortified its GIL coverage, which stood at 142% (including regulatory reserves) as at the same date.
Owing to its rich pool of high-yielding loans and a favourable funding mix, Alliance Bank’s net interest margin (three-year average: 2.4%) is among the broadest in the industry, underpinning its earnings profile. Pre-tax profit jumped 71% y-o-y in FY Mar 2022, largely owing to significantly lower net impairment charges (FY Mar 2022: RM239 mil; FY Mar 2021: RM506 mil). This translated into a stronger return on risk-weighted assets of 2.2% (FY Mar 2021: 1.3%).
