Monday 02, January 2017 by Georgina Enzer

RAM Ratings reaffirms AmInvestment Bank’s AA2/Stable/P1 ratings

RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings of AmInvestment Bank Berhad (the Bank), Malaysia.

AmInvestment is strategically important to AMMB Holdings Berhad (the Group, rated AA3/Stable/P1), given its role as the latter’s investment-banking and stockbroking arm. Liquidity and capital support from the Group is expected to be forthcoming, if needed.

AmInvestment’s operations are also closely linked to those of AmBank (M) Berhad and AmBank Islamic Berhad (both rated AA2/Stable/P1) under a universal-banking model; the Bank leverages on their larger balance sheets to secure capital market deals. AmInvestment remains one of the leading investment banks in the domestic debt capital market.

Bank Negara Malaysia recently imposed a RM 53.7 million penalty on AMMB for regulatory non-compliance by AmBank and AmBank Islamic. The Group is also required to set aside an average of RM25 million per year for 4 years to invest in systems, infrastructure and training. We do not expect the Group’s overall credit metrics to be materially affected by this incident. The Group does not envisage further fines or penalties in relation to this, and has taken measures to improve its governance structure.

The Bank’s financial performance is inherently susceptible to the vagaries of the capital markets. Excluding one-off gains, its return on risk-weighted assets came up to only 0.8 per cent in FY Mar 2015 amid depressed corporate advisory fees. The Bank had also lost a large portion of its interest income following the transfer of private banking revolving credits to AmBank. Profitability made a stronger showing in 1H FY Mar 2016 as the Bank reduced personnel expenses significantly.

On the other hand, AmInvestment’s capitalisation is deemed strong relative to its risk profile. Its common-equity tier-1 capital ratio stood at 29 per cent as at end-September 2015, given that most of the credit and market risks reside with its sister banks, i.e. AmBank and AmBank Islamic. Its capitalisation had also improved with the deleveraging of its balance sheet. Meanwhile, its asset quality recovered following the sale of AmFraser Securities, AmInvestment’s stockbroking arm in Singapore that dragged the Bank to losses in FY Mar 2014 over defaulted client trades.

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