KUALA LUMPUR: Moody's Investors Service has affirmed AmBank (M) Bhd's (AmBank) A3 long-term foreign currency deposit rating and baa2 Baseline Credit Assessment (BCA).
Additionally, the agency had also revised its rating outlook on the bank to ‘stable’ from ‘negative’, reflecting the improvements in the bank's capitalisation as well as the structural changes to its loan portfolio.
"The rating affirmation reflects the greater certainty that AmBank's Common Equity Tier 1 (CET1) capital ratio will improve over the next 12-18 months to a level similar to those prior to the decline in capitalisation because of the 1Malaysia Development Bhd (1MDB) settlement,” it said in a note today.
The rating agency said AmBank's CET1 ratio will increase due to profit retention, capital infusion from AMMB Holdings Bhd following completion of the latter's partial divestment of an insurance subsidiary, and AmBank’s migration to the Foundation Internal Ratings-Based (FIRB) approach.
"AmBank's CET1 ratio increased to 11.6 per cent on Dec 31, 2021, from 10.5 per cent on March 31, 2021, as AMMB Holdings raised capital through a private placement and scrapped its interim dividends.
"Nevertheless, the CET1 ratio is still lower than 12.7 per cent as of the end of December 2020,” said Moody’s.
The rating action also took into account AmBank's less risky loan portfolio, driven by the management's efforts to de-risk its corporate loans and focus on affluent segments.
The bank's asset quality will likely remain stable as repayment assistance packages for borrowers during the pandemic expire, said Moody’s.
"Moody's incorporates a very high likelihood of government support into AmBank's A3 long-term foreign currency deposit rating, which results in a two-notch uplift from the bank's baa2 BCA.
"The support assumption considers the systemic importance of AMMB Holdings to Malaysia's financial system, given its sizable 5.6 per cent deposit market share as of March 31, 2022,” it said.
It added that AmBank's A3 deposit rating is already at the same level as Malaysia's A3 sovereign rating.
"Given the stable outlook on Malaysia's sovereign rating, Moody's is unlikely to upgrade the bank's deposit rating.
"However, Moody's could upgrade AmBank's BCA if the bank's asset quality, capitalisation and profitability improve significantly,” it said. - Bernama