MARC has affirmed its AA-/MARC-1 financial institution ratings on AmInvestment Bank Berhad (AmInvestment). The rating outlook has been revised to stable from positive. MARC's ratings on the bank continue to reflect the consolidated credit profile of AmInvestment and its sister bank, AmBank (M) Berhad (AmBank), on account of AMMB Holdings Berhad's (AmBank Group) integrated universal banking strategy and the resulting strategic and operational linkages between the investment bank and commercial bank. MARC notes the continued improvement in the credit metrics of both banks which the rating agency views as core entities in Malaysia's sixth largest banking group based on assets as at June 30, 2011. The group's strategic partnership with the Australia and New Zealand Banking Group (ANZ), meanwhile, continues to strengthen the value of its investment banking and commercial banking franchises.

Both AmInvestment and AmBank showed improved revenue generation for the 12 months ended March 31, 2011 (FY2011) as well as the quarter ended June 30, 2011 (3MFY2012). Asset quality continues to improve at both banks, as evidenced by lower gross impaired loans and credit cost; MARC also notes the increased loan loss reserve coverage as at end-3MFY2012. Capital levels of both banks are adequately positioned to meet Basel III rules and further progress has also been made in initiatives to enhance the stability of AmBank's funding profile in recent periods.

The outlook revision reflects the reduced upside potential of the ratings in the next 12 months given the increasing downside risks to domestic economy and banking sector growth. Weaker-than-expected GDP growth may curtail the steady improvement in the banks' operating performance and consolidated credit metrics observed in recent periods.

AmInvestment's competitive standing within the domestic investment banking sector and established track record of structuring and executing capital market transactions continue to be among its main credit strengths. The investment bank maintained a fairly strong position in mergers and acquisitions origination in 2010 amid some market ranking slippage in the debt capital market and stockbroking business. MARC believes that AmInvestment's ability to defend its leading positions in capital markets, fund management and stockbroking amid intensifying competition will be key to sustaining its investment banking franchise and current earnings profile.

AmInvestment saw improved revenue generation in FY2011 and sustained earnings momentum in 3MFY2012, with good contributions from its stockbroking, equities and corporate finance segments. However, as a pure investment bank post-restructuring, the sensitivity of AmInvestment's performance to financial market conditions would foreseeably increase. Given the ongoing concerns over financial market volatility, the bank's strong capitalisation levels and the soundness of its risk management practices provide some comfort in MARC's analysis. The bank is well prepared to meet the minimum standards under Basel III with both its Tier 1 and total capital ratios at 25.2% as at end-June 2011; the capital ratios exclude profits for 3MFY2012 of RM17.3 million, which, if included, would lift capital ratios to above 30.0%.

The stable outlook incorporates MARC's expectations that the consolidated credit profile of AmInvestment and AmBank will remain in line with the rating category amid a more challenging operating environment in 2012.

Contacts:
Lim Mei Ching, +603-2082 2267/ meiching@marc.com.my;
Milly Leong, +603-2082 2275/ milly@marc.com.my.