RAM Ratings reaffirms AmBank Islamicâ€™s AA2/Stable/P1 ratings
RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings (FIRs) of AmBank Islamic Bank Berhad (the Bank).
The ratings reflect the Bank’s strategic importance as the Islamic banking arm of AMMB Holdings Berhad (the Group, rated AA3/Stable/P1); parental support is expected to be readily extended if needed. The ratings also take into consideration the Bank’s operations, which are highly integrated with those of its sister banks, i.e. AmBank (M) Berhad (rated AA2/Stable/P1) and AmInvestment Bank Berhad (rated AA2/Stable/P1), under a universal-banking platform.
AmBank Islamic’s asset-quality indicators have remained stable; its gross impaired-financing ratio (adjusted to exclude financing funded by AmBank under the Restricted Profit-Sharing Investment Account (RPSIA)) stood at 2.2 per cent as at end-September 2016. Nonetheless, the Bank’s financing portfolio is still highly concentrated on vehicle financing, which accounted for 30 per cent of its total financing and advances. Its respective common-equity tier-1 and total capital ratios of 10.5 per cent and 15.1 per cent as at the same date continue to provide a sound buffer against potential credit losses.
There has been increasing pressure on AmBank Islamic’s funding. As at end-September 2016, the Bank’s RPSIA-adjusted financing-to deposits ratio had risen to a lofty 105.1 per cent. This highlights the stiff competition for deposits in a tighter funding market and the Bank’s poorer deposit franchise compared to its larger peers. There is also considerable depositor-concentration risk. These concerns are, however, partly mitigated by its strong liquidity coverage ratio of 156 per cent on average in 1H FY Mar 2017. The Bank has also diversified its funding sources through the issuance of longer-dated debt securities over the years. Its increased focus on SME including payroll and cash management as well as merchant business are expected to help in building up its deposit base. In addition, the Group is expected to readily extend liquidity and funding support, if the need arises.