Media Release - AmBank

Media Release

RAM Ratings reaffirms AmBank Islamic's ratings

RAM Ratings has reaffirmed AmBank Islamic Berhad's (the Bank) AA2/Stable/P1 financial institution ratings (FIRs), alongside the ratings of the Bank's outstanding debt facilities. The reaffirmed FIRs reflect those of AmBank (M) Berhad (rated AA2/Stable/P1), the core banking subsidiary of AMMB Holdings Berhad (the Group).

AmBank Islamic's issue ratings

RM3 bilion Senior Sukuk Musyarakah Programme (2010/2040) RM3 billion Subordinated Sukuk Murabahah Programme (2014/2044)

Rating AA2/Stable AA3/Stable

AmBank Islamic is a highly strategic entity given its role as the Group's Islamic banking arm. The Bank's operations are strongly linked with that of its sister banks, AmBank and AmInvestment Bank Berhad (rated AA2/Stable/P1), under a universal banking model. The Bank is expected to receive ready group support if required.

AmBank Islamic's gross impaired financing (GIF) ratio deteriorated to 2.0% as at end-September 2018 from 1.8% (end-March 2017), mainly attributed to an oil and gas-related borrower and a lumpy real estate account. AmBank Islamic's financing portfolio grew 7% (annualised) in 1H FY Mar 2019, driven by a strong emphasis on SME and residential property financing, while vehicle financing continued to contract. The Bank's GIF coverage ratio (inclusive of regulatory reserves) stood at an adequate 99% as at end-September 2018. However, AmBank Islamic's credit cost ratio increased to 0.5% (annualised) in 1H FY Mar 2019 (FY Mar 2018: 0.2%) amid lower recoveries, higher impairment allowances due to a newly impaired account, and stronger financing growth.

AmBank Islamic's deposit funding capabilities still lag peers', with its financing-todeposits ratio at a high 100% as at end-September 2018. Including non-deposit funding, the Bank's financing-to-funds ratio stood at 86%. The proportion of the Bank's current and savings account (CASA) deposits has gained traction (26%) and is now more in line with the industry's (end-March 2017: 24%). AmBank Islamic's liquidity coverage ratio and net stable funding ratio are healthy, with both comfortably above 100%. As its funding and liquidity are managed at group level, the Bank is expected to receive ready liquidity and funding support if required.

AmBank Islamic's pre-tax profit climbed 23% y-o-y to RM169 million in 1H FY Mar 2019 owing to lower intercompany charges and higher net financing income that more than offset heftier impairment charges. However, the Bank's profitability is still soft with an annualised return on risk-weighted assets of 1.3%. This is partly attributed to a low proportion of non-financing income (9% of gross income), which in turn reflects its less diversified revenue base.

AmBank Islamic's capitalisation level is sound, the Bank's common equity tier-1 and total capital ratios standing at 11.4% and 16.2% as at end-September 2018, respectively. Day 1 of the adoption of Malaysian Financial Reporting Standards 9 on 1 April 2018 saw the ratios increase by 10 bps, owing to a partial release of regulatory reserves built up earlier.

Analytical contact Lim Yu Cheng, CFA, FRM (603) 7628 1188 yucheng@.my

Media contact Padthma Subbiah (603) 7628 1162 padthma@.my

Date of release: 19 December 2018

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings' credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings' credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad Copyright 2018 by RAM Rating Services Berhad

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