MARC has affirmed its long-term and short-term financial institution (FI) ratings of A+/ 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 ratings also consider its moderate profitability metrics and adequate funding profile. Moderating the ratings is the bank’s inherent vulnerability to capital market conditions.

Kenanga has a sustained retail market share, standing at 21.5% as at end-1H2020 (2019: 20.8%). Its trading volume has also benefited from the online share trading platform developed with Rakuten Securities. The trading platform continued to gain traction with total number of accounts sharply increasing to 109,575 in 1H2020, generating a trading value of RM11.7 billion (2019: 47,543 accounts; RM5.1 billion).

Apart from stockbroking fees, the bank earns interest and profit income from its loan portfolio, comprising 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 on the back of a sharp increase in trading activities; its trading value on Bursa Malaysia rose by 63.2% y-o-y to RM86.0 billion. Net profit, however, was relatively flat at RM13.5 million mainly due to increased expenses and higher impairment provisions.

Kenanga’s consolidated Common Equity Tier 1 (CET1) ratio declined to 18.3% as in 1H2020 (1H2019: 20.4%) but remains healthy. 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 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%).

The stable outlook assumes that Kenanga will maintain its key financial metrics that are broadly in line with the rating band.