MARC has affirmed its long-term and short-term
financial institution (FI) ratings of A+
and MARC-1 on Kenanga Investment
Bank Berhad (Kenanga) with a stable outlook.
The affirmed ratings are primarily premised on Kenanga’s
strong competitive position in the retail stockbroking business in Malaysia, its
healthy capital position, its moderate profitability metrics
and adequate funding profile. The stable
outlook reflects MARC’s expectation that Kenanga will maintain its key financial
metrics that are commensurate with the ratings.
Kenanga’s strong stockbroking franchise is reflected by
its retail market share of 20.7% in 1Q2019 (2018: 20.6%) which has largely been
built on the back of a wide branch network and a sizeable remisier
base. Apart from stockbroking fees, the bank generates interest income from its
loan portfolio, comprising mainly share margin financing, which stood at RM2.0
billion as at end-1H2019.
In 1H2019, total income declined marginally to RM218.9
million (1H2018: RM221.4 million) mainly on lower brokerage fees. Its high cost-to-income
ratio of 95.3% is largely due to substantial commission expenses and costs of
maintaining its branch network. During this period, Kenanga recorded net profit
of RM13.4 million (1H2018: RM18.6 million), aided by higher credit loss
reversals. The bank’s trading gains, brokerage fees and fee income from investment
banking activities remain susceptible to capital market conditions which would
continue to pose earnings volatility. Its consolidated
Common Equity Tier 1 (CET1) ratio declined to 20.4% (1H2018: 22.8%) largely due
to higher risk-weighted assets arising from larger equity exposure. Its CET1
ratio, however, remains well above the minimum regulatory requirement.
In terms of funding and
liquidity profile, Kenanga relies on short-term wholesale customer deposits,
with deposits from non-bank FIs and business enterprises collectively
accounting for 59.2% of total liabilities as at end-June 2019. The high funding
concentration poses some liquidity risk to the bank, although this is mitigated
by sizeable liquid assets comprising 38.2% of total asset. Liquidity coverage
ratio stood at 153.5% in 1Q2019, higher than the minimum 100% requirement.
Major Rating Factors
- Established track record;
- Strong market position in the
retail stockbroking segment; and
- Susceptible to capital market volatility;
- Elevated cost base.