CREDIT ANALYSIS REPORT

KAF INVESTMENT BANK BERHAD - 2018

Report ID 5807 Popularity 117 views 21 downloads 
Report Date Oct 2018 Product  
Company / Issuer KAF Investment Bank Bhd Sector Finance - Financial Institution
Price (RM)
Normal: RM500.00        
  Add to Cart
Rationale

MARC has affirmed its long-term and short-term financial institution (FI) ratings of AA- and MARC-1 on KAF Investment Bank Berhad (KAF IB) with a stable outlook.

The affirmed ratings primarily reflect KAF IB’s strong capital ratios and liquidity levels, underpinned by a conservative investment strategy. The rating is moderated by the susceptibility of KAF IB’s performance to domestic capital market conditions and interest rate movements. The stable outlook reflects MARC’s expectations that KAF IB will manage its credit and market risks in relation to its operations and continue to adhere to a prudent investment policy.

KAF IB’s assets are dominated by highly liquid Malaysian sovereign securities, negotiable instruments of deposits (NID) and private debt securities (PDS), with a combined total of RM7.2 billion as at end-February 2018. Accounting for 87.0% of the bank’s total assets, this composition has enabled the bank to readily adjust its investment portfolio in response to anticipated market movements as well as to mitigate funding volatility.

KAF IB’s fixed income securities continue to be characterised by high credit quality, with about 84.0% of the outstanding amount consisting of sovereign issuances and PDS with AAA ratings or government guarantees as at end-February 2018. The lowest quality bonds are rated in the A band, which comprise a marginal 0.7% of its fixed income securities. The bank’s Tier 1 and total capital ratios stood at a healthy 130.2% and 131.2% as at end-February 2018, well above the Malaysian investment banking industry average of 32.7% and 35.6%. MARC observes that KAF IB’s capital comprised quality components, primarily paid-up capital, retained earnings and statutory reserves. These made up around 95.1% of the total capital base.

For the nine months ended February 28, 2018 (9MFY2018), KAF IB recorded revenue and pre-tax profit of RM143.2 million and RM85.4 million. Its 98.9%-owned stockbroking subsidiary KAF-Seagroatt & Campbell Berhad (KAFSC) generated brokerage fee income of RM29.5 million or about 20.6% of revenue. It has launched an online brokerage system and related mobile application in 1Q2018 to strengthen its mobile banking operations. Nonetheless, profitability was lower y-o-y due to weaker market conditions which led to a decrease in disposal gains of securities. The rise in the overnight policy rate (OPR) also led to higher interest expense of RM148.5 million (9MFY2017: RM110.5 million).

Major Rating Factors

Strengths

  • Strong capitalisation and healthy liquidity position; and
  • Conservative investment strategy.

Challenges/Risks

  • Performance susceptible to capital market conditions; and
  • Reliance on wholesale funding.
Related