AmMerchant Bank Berhad’s (AmMerchant) financial institution ratings has been upgraded to AA-/MARC-1 premised on the Bank’s improvement in asset quality, consistent strong market position in fee-based activities; and funding profile. Reflected in the rating is the Bank’s experienced management team and effective risk management systems. The outlook is stable.

The Bank is a leading domestic investment bank with strong franchises in debt and equity origination, funds management, debt trading, and merger and acquisition (M&A) advisory services. The Bank topped Bloomberg’s league table in managing M&As for 2005, holding a market share of 19.4% in M&As and once again emerged as the leader in Initial Public Offerings (IPOs), raising funds for primary listings on Bursa Malaysia amounting to RM2.4 billion, representing an impressive 41.0% market share. The Bank completed 17 transactions in 2005, raising nearly RM13.8 billion PDS, compared with RM7.1 billion PDS issuance in 2004, across a diversified portfolio of debt instruments and issuers. The Bank continued to rank amongst the top 3 in Bloomberg’s league table 2005 in the Malaysian debt capital market, despite a reduction in market share from 20% in 2004 to 10% in 2005. Generally, the strong performance of the Bank in the debt capital markets in 2005 is reflected in the number of accolades and awards won by the Bank. The strong position it enjoys remains a competitive advantage and offers some protection in the event of an economic downturn. The Bank has also launched new structured products for sophisticated investors and risk management products (derivatives) for clients, and is also emphasising more recurring-fee type business to remain well-positioned in a competitive industry.

As at March 2006, total assets registered a 44.2% growth from a year ago. The Bank’s balance sheet is expected to show more variance going forward than previously as the level of its trading inventory is dictated to a great extent by the state of the investment climate. The balance sheet remains rather liquid with significant holdings of treasury assets as of March 2006, primarily fixed-income securities held for investments and trading.

The Bank’s Gross NPL showed a significant reduction of 38.2% in FY 2006, a reflection of the Bank’s continued commitment in the recovery of its problematic loans. This decline in NPL was mainly attributed to the significant amount of NPL reclassification to performing loans and financing, and increase in recoveries. The Bank’s net NPL ratio in FY2006 showed a vast improvement, declining to 6.7% (FY2005: 14.8%) which is lower than the merchant banking industry’s average as well as comparatively lower than its peers.

As a consequence of incorporating market risk in capital adequacy ratios pursuant to BNM’s guideline with effect from April 2005, the capitalization of the Bank declined slightly during the year with core capital ratio declining to 12.1% (FY2005: 13.3%) and risk weighted capital ratio (RWCR) of the Bank dropping to 13.7% (FY2005: 16.6%).

The Bank’s pretax profit charted an increase of 29.2% in FY2006 mainly arising from the higher net gain from sale of investments and gain on revaluation of securities held-for-trading. The Bank’s Islamic operations improved with Islamic Banking contributing more to net income by garnering a share of 15.7% (FY 2005: 11.6%) of net income contributing RM 75.2 million (FY2005: RM 47.6 million).

The Bank appears to have adequate risk management and control systems, with appropriate checks and balances in place. The risk management process will remain a key rating factor, not only in terms of existing investment banking activity but also with regard to newer and more exotic products.