Moody's affirms ratings of AmBank Berhad; revises BFSR outlook to positive

Stocks and Financial Services Press Releases Tuesday November 8, 2011 10:23
Singapore--8 Nov--Asian Banker

Singapore, November 8th 2011 - Moody's Investors Service has today affirmed the following ratings of AmBank (M) Berhad ("AmBank"): D bank financial strength rating ("BFSR"), which maps to a Ba2 baseline credit assessment ("BCA"); and Baa2/P-3 foreign currency long-term/short-term deposit ratings.

At the same time, we revised the outlook on AmBank's D BFSR to positive from stable.
The outlook on AmBank's deposit ratings remains stable.
Ratings rationale

The revision in the outlook on AmBank's BFSR reflects the improvements in the bank's credit profile brought about by management efforts to enhance the bank's risk profile. In particular, the bank's asset quality and liquidity have showed consistent improvements over the past four years.

"The positive outlook reflects our expectation that AmBank's credit profile will continue to improve in the medium term. At the same time, it takes into consideration the challenges AmBank faces in further improving its deposit mix, net interest margins and asset quality significantly in the competitive domestic bank environment as well as in the context of the renewed volatility in the global economy," said Simon Chen, a Moody's analyst.

AmBank's foreign currency long-term deposit rating of Baa2 is supported by (1) the bank's Ba2 BCA and (2) Moody's assessment of a very high probability of systemic support when required.
This assessment is predicated on AmBank's entrenched and stable market position that underpins Moody's view of its systemic significance to the Malaysian banking sector.

The bank has consciously reduced its concentration in auto financing and increased its lending to small and medium enterprises and large corporations. At end-June 2011, auto loans comprised 28% of its loan portfolio, down from 42% at end-March 2009.

At the same time, the bank also realigned its consumer lending strategy to focus on consumers with better credit quality. The rebalancing of its loan portfolio, aided by enhanced risk management capabilities allowed AmBank to improve the overall credit quality of its loan portfolio and maintain its risk-adjusted profits.

Plans to expand its wealth management, transaction banking, foreign exchange and derivatives businesses, leverage on ANZ's international connectivity and to intensify cross-selling efforts in the near term will provide support to the bank's profits and deposits.

Stabilizing new impaired loan formation over the last four years and high impaired loan coverage ratios have led to the improvements in the bank's asset quality. However, its impaired loans ratio (3.3% at end-June 2011) still remains somewhat higher than its major domestic peers.

The bank's improved risk management practices and continuous portfolio rebalancing efforts, coupled with the benign outlook on domestic interest rates should support its asset quality and loan recovery from any potential weakening in the credit environment.

AmBank has made noticeable improvements to achieve greater funding stability and diversity. The loans-to-deposits ratio improved slightly to 101% at end-June 2011, from 106% at end-March 2010, but still remains above the Malaysian banking system average of 79%. Short-term funding, including interbank deposit funding which is potentially more volatile source of funds, constituted 8% of total funding. This is lower than the 13% level prior to March 2009.

Of its total non-bank customer deposits at end-June 2011, only 12% is made up of cheaper current or savings account (CASA) deposits. AmBank's CASA growth has been above industry level over the past four years. The bank's continuing efforts to prioritize low-cost customer deposit gathering over lending will help to alleviate funding pressures if developed in the future.

As at end-June 2011, AmBank's profitability remained sound. Its net income was 2.1% of average risk-weighted assets, in line with the Malaysian peer median.

Its capital levels have moderated over the last year largely due to business growth. As at end-June 2011, the Tier 1 capital ratio was 9.1%, down from 9.8% at end-March 2011 and 9.6% at end-June 2010. This excludes the recognition of the bank's 1QFY2012 profits of RM328 million. Moreover, excluding hybrid instruments, the core Tier 1 ratio was 6.8% at end-June 2011, down from 7.3% at end-March 2011 and 7.2% at end-June 2010.

The following factors could result in upward pressure on AmBank's BFSR and/or BCA: (1) significant growth in the bank's domestic market position and regional operations, to improve stability and diversification of its income streams; (2) significant reduction in borrower and industry concentrations; (3) impaired loans kept below 3% of gross loans and below 20% of shareholder's equity and loan loss reserves; (4) continued maintenance of risk-adjusted profitability -- measured by net income as a percentage of average risk-weighted assets -- of above 2%; and (5) continued maintenance of an adequate capital buffer against credit losses with Tier 1 capital ratio above 10%.

Similarly, upward pressure on the bank's foreign currency deposit rating could result from (1) an upgrade in its BFSR and BCA; and/or (2) an assessed increase in systemic support for the bank.

Conversely, the following factors could result in downward pressure on AmBank's BFSR and/or BCA: (1) aggressive organic expansion or acquisitions, resulting in significant increases in its risk profile; (2) keen price competition, resulting in net income falling below 1.5% of average risk-weighted assets; (3) significant weakening in its operating environment or poorer underwriting practices, resulting in the impaired loans ratio rising back above 4%; and (4) a decline in the Tier 1 ratio below 8%.

Similarly, downward pressure on the bank's foreign currency deposit rating could result from (1) a downgrade in its BFSR and BCA; and/or (2) an assessed fall in the systemic support for the bank.
Principal methodologies

The methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007. Please see the Credit Policy page on for a copy of these methodologies.

Headquartered in Kuala Lumpur, Malaysia, AmBank (M) Berhad reported total assets of RM84.2 billion (USD27.7 million) as at June 30, 2011.
Regulatory disclosures
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website for further information.

Please see for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. (November 8 2011)--

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