Tuesday, Oct 12, 2004
MARC has upgraded AmMerchant’s financial institution rating to A+ and reaffirmed its short term rating at MARC-1 based on the Bank’s consistent strong market position in fee-based activities; significant improvement in the Bank’s asset quality; further improvements in its funding profile and capitalization; and expected improvement in the profile of the Bank with its impending listing on Bursa Saham Malaysia. These strengths are, however, moderated by the lower profitability levels in FY 2004.
AmMerchant remains as the largest amongst the 10 merchant banks, by most measures, owing to its historically sizable loan book. Nevertheless, the Bank’s gross loans have recorded average year-on-year decline of 11.1% since FY 2000 as the Bank continues to build its strength in fee-based and securities trading activities with lending activities assuming a secondary role. Investment and dealing securities still accounted for a sizable 41.5% (FY 2003: 48.8%) of total assets despite the reduction in the securities portfolio brought about by heavy securities trading during the year.
The Bank continues to exhibit its strength in corporate advisory and debt origination activities with market share, in terms of number of deals, of 27%, 12% and 35% in listings, capital raising exercises and mergers and acquisitions in 2003. The Bank maintained its dominance in private debt securities issuance in 2003 with a market share of 19.9% (2002: 19.9%). For the nine months period to 30 September 2004, AmMerchant ranked second in IPOs, by volume of deals, with a 22.9% market share.
NPLs of the Bank continue to chart a downward trend (-6.1%) as the Bank endeavoured to address its problematic loans. Net of provisions, net NPL ratio of the Bank recorded further improvement settling at 6.6% (FY 2003: 8.6%), significantly lower than the merchant banking industry average at 17.9%. Going forward, further improvement in its loan book quality is expected upon completion of restructuring schemes of its residual problem loans and lower new NPLs on the back of the Bank’s shrinking loan base.
Liquidity profile of the Bank displayed further improvements with liquid asset ratio increasing to 32.1% from 27.3% previously. Net loans/ net funding base increased marginally to 46.4% (FY 2003: 45.1%) as funding sources of the Bank declined in tandem with the Bank’s loan book. Funding profile of the Bank improved during FY 2004, evidenced by increase in customer deposits by 10.1%, with this source of funding accounting for a higher percentage of total funding at 39.6% (FY 2003: 33.0%) and less reliance on interbank deposits and securities sold under repo (-3.9%).
The Bank’s capitalization has strengthened further during the year with core capital ratio recording a historical high since the Asian financial crisis at 12.7% (FY 2003: 11.4%) with year-on-year growth of 13.6% in retained profits. After charting a declining trend since FY 2001, the risk weighted capital ratio (RWCR) of the Bank climbed to 16.1% (FY 2003:14.7%) reaching the level recorded in FY 2001.
The Bank’s exposure to market price changes with its sizable holding in market sensitive securities has resulted in subdued earnings during the year as the market witnessed an upward shift in the yield curve in the second half of 2003. Lower profitability levels were brought about by decline in securities trading income by 56.2% to RM61.8 million (FY 2003: RM141.1 million) and higher provision for diminution in value of investments of RM41.0 million (FY 2003: 1.8 million). Nevertheless, improvement in the Bank’s loans book as exhibited by lower loan loss provisions (-55.6%) and dividend income of RM53.7 million helped eased the downward pressure on profitability of the Bank.
The listing of AmMerchant is aimed at unlocking the value of the AMMB group’s investment banking activities amidst market preference for specialist niche players. The listing targeted for completion end of 2004 will increase the profile of the Bank and may provide indirect incentives to further build its specialist skills and capabilities.
AmMerchant remains as the largest amongst the 10 merchant banks, by most measures, owing to its historically sizable loan book. Nevertheless, the Bank’s gross loans have recorded average year-on-year decline of 11.1% since FY 2000 as the Bank continues to build its strength in fee-based and securities trading activities with lending activities assuming a secondary role. Investment and dealing securities still accounted for a sizable 41.5% (FY 2003: 48.8%) of total assets despite the reduction in the securities portfolio brought about by heavy securities trading during the year.
The Bank continues to exhibit its strength in corporate advisory and debt origination activities with market share, in terms of number of deals, of 27%, 12% and 35% in listings, capital raising exercises and mergers and acquisitions in 2003. The Bank maintained its dominance in private debt securities issuance in 2003 with a market share of 19.9% (2002: 19.9%). For the nine months period to 30 September 2004, AmMerchant ranked second in IPOs, by volume of deals, with a 22.9% market share.
NPLs of the Bank continue to chart a downward trend (-6.1%) as the Bank endeavoured to address its problematic loans. Net of provisions, net NPL ratio of the Bank recorded further improvement settling at 6.6% (FY 2003: 8.6%), significantly lower than the merchant banking industry average at 17.9%. Going forward, further improvement in its loan book quality is expected upon completion of restructuring schemes of its residual problem loans and lower new NPLs on the back of the Bank’s shrinking loan base.
Liquidity profile of the Bank displayed further improvements with liquid asset ratio increasing to 32.1% from 27.3% previously. Net loans/ net funding base increased marginally to 46.4% (FY 2003: 45.1%) as funding sources of the Bank declined in tandem with the Bank’s loan book. Funding profile of the Bank improved during FY 2004, evidenced by increase in customer deposits by 10.1%, with this source of funding accounting for a higher percentage of total funding at 39.6% (FY 2003: 33.0%) and less reliance on interbank deposits and securities sold under repo (-3.9%).
The Bank’s capitalization has strengthened further during the year with core capital ratio recording a historical high since the Asian financial crisis at 12.7% (FY 2003: 11.4%) with year-on-year growth of 13.6% in retained profits. After charting a declining trend since FY 2001, the risk weighted capital ratio (RWCR) of the Bank climbed to 16.1% (FY 2003:14.7%) reaching the level recorded in FY 2001.
The Bank’s exposure to market price changes with its sizable holding in market sensitive securities has resulted in subdued earnings during the year as the market witnessed an upward shift in the yield curve in the second half of 2003. Lower profitability levels were brought about by decline in securities trading income by 56.2% to RM61.8 million (FY 2003: RM141.1 million) and higher provision for diminution in value of investments of RM41.0 million (FY 2003: 1.8 million). Nevertheless, improvement in the Bank’s loans book as exhibited by lower loan loss provisions (-55.6%) and dividend income of RM53.7 million helped eased the downward pressure on profitability of the Bank.
The listing of AmMerchant is aimed at unlocking the value of the AMMB group’s investment banking activities amidst market preference for specialist niche players. The listing targeted for completion end of 2004 will increase the profile of the Bank and may provide indirect incentives to further build its specialist skills and capabilities.