KUALA LUMPUR – An upgrade of AmBank (M) Bhd’s ratings is unlikely, but the outlook could be revised to stable if the institution’s capital recovers to pre-1Malaysia Development Bhd settlement levels, or if there is a sustained improvement in its asset quality and profitability, over the next 12 to 18 months.
On March 12, Moody’s affirmed AmBank’s A3 long-term foreign currency deposit rating, but changed the outlook to negative from stable, following AMMB Holdings Bhd’s RM2.83 billion settlement with the government (A3 stable) on February 26.
“The negative outlook reflects uncertainty over AmBank’s ability to restore its capitalisation to pre-settlement levels over the next 12 to 18 months. AmBank will absorb the bulk of the large settlement at a time when it is facing a slowdown in its internal capital generation due to rising credit costs,” it said in a statement.
The recovery in its capitalisation will depend on the group’s divestitures, the timing of which is uncertain, and regulatory approval for its plans to implement risk-weighted asset optimisation via the foundation internal rating-based approach in April next year.
“The affirmation of AmBank’s A3 rating incorporates our assessment of a very high probability of government support in times of need.”
This results in a two-notch uplift from the bank’s baa2 baseline credit assessment, based on its systemic importance as the sixth-largest banking group in Malaysia by asset, with AmBank as the group’s main operating entity.
On the downside, Moody’s said it could downgrade AmBank’s ratings if its capitalisation does not recover to pre-settlement levels because of an inability to execute capital-strengthening initiatives.
“A sharp deterioration in the bank’s asset quality and profitability that hurts capital generation could also lead to a downward ratings pressure.” – Bernama, March 31, 2021
