View Credit Analysis Report (605371)

Aid605371
StatusPublished
CategoryReport
SubcategoryFinance - Financial Institution
CoidKIBB
Appoletid0
Date Article2020-12-31 00:00:00
PublicYes
TitleKENANGA INVESTMENT BANK BERHAD - 2020
Content
MARC has affirmed its long-term and short-term financial institution (FI) ratings of A+ and MARC-1 on Kenanga Investment Bank Berhad (Kenanga). The ratings outlook is stable.

Kenanga’s strong competitive position in the domestic stockbroking industry and its sound capital position are key rating drivers. The rating also considers Kenanga’s moderate profitability metrics and adequate funding profile. Moderating the rating is the bank’s inherent vulnerability to capital market conditions.

Kenanga has a sustained retail market share of 21.5% as at 1H2020 (2019: 20.8%). This position has been built largely on the back of a wide network of 29 branches and a sizeable remisier base of 765 individuals. Kenanga’s trading volume has also benefited from the online share trading platform developed with Rakuten Securities, Inc which is Japan’s second-largest online brokerage firm. The trading platform continued to gain traction with total number of accounts sharply increasing to 109,575 as at 1H2020, generating a trading value of RM11.7 billion (2019: 47,543 accounts; RM5.1 billion). 

Apart from stockbroking fees from trading activities, the bank also generates interest income from its loan portfolio, comprising of share margin financing and term loans, which stood at RM1.8 billon as at 1H2020. Total income rose by 30.0% y-o-y to RM284.5 million in 1H2020 on the back of a sharp increase of trading volumes; Kenanga’s trading value in Bursa Malaysia Securities Berhad (Bursa Malaysia) increased by 63.2% y-o-y to RM86.0 billion. The bank’s net profit, however, was relatively flat at RM13.5 million (1H2019: RM13.4 million) mainly due to increased expenses and higher impairment provisions of RM8.4 million in 1H2020. The expenses were mainly related to commissions and incentives paid to brokers which rose 71.0% y-o-y to RM108.7 million.

Kenanga’s consolidated Common Equity Tier 1 (CET1) ratio declined to 18.3% as at 1H2020 (1H2019: 20.4%) due to higher risk-weighted assets from its market risk exposure. Its CET1 ratio, however, remains well above the minimum regulatory requirement and provides buffer against any potential asset quality issues. In terms of funding and liquidity profile, Kenanga relies on short-term wholesale customer deposits, with deposits from non-bank financial institutions and business enterprises collectively accounting for 48.7% of total liabilities as at end-June 2020. The high funding concentration poses some liquidity risk to the bank, although this was mitigated by sizeable liquid assets of 38.0% of total assets. Liquidity coverage ratio stood at 146% in 1H2020 (2019: 132%), well above the minimum 100% requirement.

The stable outlook reflects MARC’s expectation that Kenanga will maintain its key financial metrics that are broadly in line with the rating band.

Major Rating Factors

Strengths
  • Established track record and strong market position in stockbroking; and
  • Strong capitalisation.
Challenge/Risk
  • Vulnerable to capital market volatility and economic conditions.

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