RAM Ratings puts Alliance Bank on positive outlook

15 December 2017

RAM Rating Services Berhad

RAM Ratings has placed Alliance Bank Malaysia Berhad’s (the Group) A1/P1 financial institution ratings and the ratings of its outstanding debt instruments on a positive outlook. Concurrently, the Bank’s financial institution ratings and issue ratings have been reaffirmed.

The positive outlook is premised on the Group’s proven track record of robust asset quality across economic cycles, solid funding and liquidity profile, and healthy capitalisation. Despite being one of the smallest domestic banking groups in Malaysia, Alliance Bank has carved a niche in the SME segment, which has also benefitted the Group with a large portion of current- and savings-account (CASA) deposits.

Alliance Bank’s asset quality has consistently held up well and stands among the industry’s best, a testament of the Group’s prudent underwriting and risk management. Its gross impaired-loan (GIL) ratio has been outperforming the industry in the last few years, standing at 1.2% as at end-September 2017 (end-March 2017: 1.0%) against the industry’s 1.7%. The Group’s strategy of pursuing higher-yielding loans such as SME and personal financing has also manifested into broader margins; its net interest margin clocked in at an annualised 2.3% in 1H FY Mar 2018 (FY Mar 2017: 2.2%). While the Group maintains its strategy of seeking higher risk-adjusted returns, its loan growth is expected to be measured, supported by its prudent credit culture.

Alliance Bank achieves a better funding cost-structure vis-à-vis some of its larger peers, given its wide base of low-cost CASA deposits; these constituted 37% of its total deposits as at end-September 2017 (industry: 27%). These, combined with its sizable composition of retail deposits, provide the Group with funding resilience and diversity.

Alliance Bank’s common-equity tier-1 capital ratio stood at a strong 14.1% as at end-September 2017. Its total capital ratio is expected to be lifted to a pro forma 19.3% following the recent issuance of its RM150 million of additional tier-1 capital securities. Given the Group’s robust loss-absorbing capacity, it is well poised to weather any challenges amid the uneven operating landscape.

Table 1: Debt instruments of Alliance Bank

 Instrument
Rating
 RM1.5 billion Senior MTN Programme (2015/2045)
A1/Positive/-
 RM2.0 billion Subordinated MTN Programme (2015/2045)
A2/Positive/-
 RM500 million CP Programme (2015/2022)
-/-/P1
 RM1.0 billion Additional Tier-1 Capital Securities Programme (2017/2117)
BBB1/Positive/-