Monday, Oct 27, 2003
MARC has upgraded AmMerchant Bank Berhad’s (AmMerchant) financial institution rating to A and reaffirmed its short term rating at MARC-1 based on the bank’s market position, greater focus on fee-based and investment banking activities, improvement in the bank’s asset quality following the resolution of the bulk of its legacy problem loans, and its improved funding profile. These strengths were moderated by comparatively lower loan loss coverage than the industry and moderate profitability levels.
AmMerchant is, by most measures, the largest amongst the 10 merchant banks in the country with total assets of RM16,165 million as at end-March 2003 accounting for about 39% of the total merchant banking industry asset base. While loan assets contracted further during the year in line with the bank’s strategy to focus on fee-based activities, holdings of investment and trading securities have risen to account for 49% of total assets. This results in a higher liquidity profile, but the increased exposure to market-sensitive securities introduces some degree of volatility to earnings due to market price changes. The bank has endeavoured to improve its risk management process and systems to address the potential increase in its risk profile resulting from its shift towards investment banking activities.
The bank’s outstanding loan portfolio are mainly concentrated in the construction, manufacturing, finance and business services and purchase of securities sub-sectors, collectively accounting for over 70% of total loans. The loans book is expected to reduce, going forward, as it focuses on investment banking activities with lending activities assuming a secondary role.
In FY 2003, NPLs declined by a significant 38% to RM930 million. The reduction was mainly due to lower NPLs arising during the year, large write-offs and completion of the bulk of the restructuring schemes under CDRC. Loan loss reserve coverage escalated to 50.3% in FY 2003 from 31.0% previously, although this is still lower than some of its peers.
The Bank’s liquidity profile has shown steady improvement, with liquid assets ratio rising from 29.8% in FY 2002 to 37.9% in FY 2003. Conversely, net loans/ net funding base reduced significantly to 45% (FY 2002: 69%) in line with progressive reduction of its loan assets.
The bank’s risk weighted capital ratio (RWCR) declined for two consecutive years since FY 2001 mainly due to the redemption of part of the subordinated certificates of deposits in FY 2002 and repayment of subordinated term loans to AMMB Holdings Berhad in May 2002. The bank’s Tier-1 capital, however, increased over the same period owing to growth in unappropriated profits.
Pre-tax profit surged by 20% in FY 2003 as loan loss provisions was more than offset by significant growth in non-interest income which contributed 49% to total income of the bank. MARC expects non-interest income to assume an increasing proportion of earnings going forward as the bank pare down its lending activities. In addition, prudent cost management will help to mitigate downward pressure on profitability with AmMerchant being the most cost-efficient merchant bank amongst its peers.
AmMerchant is, by most measures, the largest amongst the 10 merchant banks in the country with total assets of RM16,165 million as at end-March 2003 accounting for about 39% of the total merchant banking industry asset base. While loan assets contracted further during the year in line with the bank’s strategy to focus on fee-based activities, holdings of investment and trading securities have risen to account for 49% of total assets. This results in a higher liquidity profile, but the increased exposure to market-sensitive securities introduces some degree of volatility to earnings due to market price changes. The bank has endeavoured to improve its risk management process and systems to address the potential increase in its risk profile resulting from its shift towards investment banking activities.
The bank’s outstanding loan portfolio are mainly concentrated in the construction, manufacturing, finance and business services and purchase of securities sub-sectors, collectively accounting for over 70% of total loans. The loans book is expected to reduce, going forward, as it focuses on investment banking activities with lending activities assuming a secondary role.
In FY 2003, NPLs declined by a significant 38% to RM930 million. The reduction was mainly due to lower NPLs arising during the year, large write-offs and completion of the bulk of the restructuring schemes under CDRC. Loan loss reserve coverage escalated to 50.3% in FY 2003 from 31.0% previously, although this is still lower than some of its peers.
The Bank’s liquidity profile has shown steady improvement, with liquid assets ratio rising from 29.8% in FY 2002 to 37.9% in FY 2003. Conversely, net loans/ net funding base reduced significantly to 45% (FY 2002: 69%) in line with progressive reduction of its loan assets.
The bank’s risk weighted capital ratio (RWCR) declined for two consecutive years since FY 2001 mainly due to the redemption of part of the subordinated certificates of deposits in FY 2002 and repayment of subordinated term loans to AMMB Holdings Berhad in May 2002. The bank’s Tier-1 capital, however, increased over the same period owing to growth in unappropriated profits.
Pre-tax profit surged by 20% in FY 2003 as loan loss provisions was more than offset by significant growth in non-interest income which contributed 49% to total income of the bank. MARC expects non-interest income to assume an increasing proportion of earnings going forward as the bank pare down its lending activities. In addition, prudent cost management will help to mitigate downward pressure on profitability with AmMerchant being the most cost-efficient merchant bank amongst its peers.