RAM Ratings has revised the rating outlook of AMMB Holdings Berhad (AMMB or the Group) and its banking subsidiaries to positive from stable. Concurrently, we have reaffirmed AMMB’s AA3/P1 corporate credit ratings as well as the financial institution ratings of AmBank (M) Berhad, AmBank Islamic Berhad and AmInvestment Bank Berhad. The ratings of debt securities issued by AmBank and AmBank Islamic have also been reaffirmed.
The positive outlook is driven by the demonstrable improvement in the Group’s capitalisation. As at end-September 2022, AMMB’s common equity tier-1 (CET-1) capital ratio of 12.2% (without transitional arrangement) had largely recovered to near pre-1Malaysia Development Berhad (1MDB) settlement level. Losses following its settlement with the government for its involvement in 1MDB had lowered its CET-1 capital ratio to 10.4% as at end-March 2021 (end-March 2020: 12.4%).
The Group took decisive measures to restore its capital base, including an RM825 mil private placement in April 2021, concluding the partial divestment of its general insurance outfit and curtailing dividend payments. We expect profit accretion to be healthy over the remaining quarters of FY Mar 2023, enabling the Group to achieve a post-dividend CET-1 capital ratio (without transitional arrangement) of around 12.5% by end-March 2023. A CET-1 capital ratio at this level or higher on a sustained basis would merit a consideration for a rating upgrade, provided all other credit metrics stay intact.
AMMB’s headline gross impaired loan (GIL) ratio of 1.5% as at end-September 2022 remained better than the industry’s 1.8%, notwithstanding a recent increase in impaired household loans. As with other banks, we expect the GIL ratio to creep up further when most of the Group’s remaining relief measures (about 4% of loans as at end-October 2022) expire by 4Q FY Mar 2023. Macroeconomic risks have risen but asset quality risk should be manageable, given large provisions for COVID-19-related slippages, tight monitoring of vulnerable segments and aggressive collection efforts. GIL coverage (with regulatory reserves) stood at a sound 106% as at end-September 2022.
AMMB staged a strong rebound in FY Mar 2022, achieving a pre-tax profit (adjusted for one-offs) of RM1.8 bil. This translates to a respective return on assets (ROA) and return on risk-weighted assets (RoRWA) of 1.0% and 1.5% (FY Mar 2021: 0.7% and 1.1%). Depressed trading and investment income was compensated by higher net interest income (+12% y-o-y) from healthy net interest margin (NIM) expansion and above-industry loan growth, as well as significantly lower impairment charges (-33% y-o-y). This encouraging performance was sustained in 1H FY Mar 2023, with ROA and RoRWA climbing further to an annualised 1.3% and 1.9%, respectively. The Group’s NIM is expected to hold steady at around 2.0%-2.1%. Although improved, the margin is still thinner relative to domestic banking groups’ (~2.3%-2.4%).
