AmInvestment Bank Bhd - 2010

MARC has affirmed its AA-/MARC-1 financial institution ratings on AmInvestment Bank Berhad (AmInvestment). The affirmed ratings reflect the consolidated strength of the commercial and investment banking franchises of AMMB Holdings Berhad (AMMB Holdings) Group and its improving financial profile in addition to the strong operational support received from its major shareholder and strategic partner, Australia and New Zealand Banking Group Ltd (ANZ). The ratings are consistent with MARC’s methodology of aligning the ratings of core banking entities to a notional group rating where a universal banking strategy is employed and operational integration and shared branding exist.  Meanwhile, the outlook on the long-term rating is revised to Positive from Stable to reflect further potential for improvements in the group’s operating and financial profile under its universal banking platform. It also incorporates the upside potential in AmInvestment’s performance in the current environment.

AmInvestment is the investment banking arm of AMMB Holdings Group, the fifth largest banking group in Malaysia by asset size. The investment bank has established a strong market position and has been consistently ranked within the top three investments banks in domestic capital market activities. Following the restructuring exercise in FY2009, AmInvestment’s balance sheet contracted substantially, with most of its loans and treasury assets transferred to the group’s commercial and Islamic banking arms, leaving AmInvestment with a leaner balance sheet. In line with AMMB’s universal banking model, AmInvestment continues to leverage on AmBank’s balance sheet and capital to participate in larger and more profitable capital-market deals, abetted by recovery in capital markets.

The group’s largest shareholder, Australia-based ANZ, has added depth to a number of the group’s operational functions, namely financial management, risk management, product and new business development and distribution channel management. Additionally, the partnership has generated some cross-selling opportunities for the group across the Asia-Pacific, where ANZ continues to expand its regional presence. 

The decline in capital market-related activities during FY2009 and intensified competition exerted pressure on AmInvestment’s performance, although the subsequent recovery of the economy has contributed positively to the bank’s bottom line. AmInvestment registered an annualised pre-tax ROA of 7.03%  during the first nine  months of FY2010 ending  December 2009 (9MFY2010), a  strong  rebound compared to the pre-tax ROA of 0.14% for the full year of FY2009. While fee income has generally increased, the improved performance was also partly driven by an exceptional gain from the disposal of securities by its Islamic banking operations and higher investment income during the period. Given the bank’s asset light balance sheet and consequently low total risk-weighted assets, AmInvestment continued to report a capital ratio of 28.5% as at end-9MFY2010 (March 2009: 28.1%), which compared well against the current minimum regulatory capital requirement of 8%.

Meanwhile, at the group level, AMMB Holdings Group registered an annualised pre-tax ROA of 1.54% in 9MFY2010 (FY2009: 1.41%), thanks to higher earnings at the commercial and investment banking segments of the group, which collectively accounted for more than 90% of the group’s pre-tax profits. The group’s core earning contributor, AmBank (M) Berhad (AmBank), delivered improved results during the period. AmBank’s higher loan base and large proportion of fixed-rate loans enabled the bank to maintain its net interest income amid the low-interest environment, while the bank’s bottom line was also boosted by higher investment income. At the same time, capitalisation as reflected by the total capital adequacy ratio of 14.7% at 9M-FY2010 remained healthy. That said, AmBank’s higher-than-industry, albeit improving, gross non-performing loans (NPL) ratio of 3.8% as at 9M-FY2010 remains a moderating rating factor.

An upgrade of AmInvestment’s long-term financial institution rating hinges on the AMMB group’s ability to make the transition towards a universal banking model with better recurring profitability and stronger key financial metrics.

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