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Rating Action:

Moody's upgrades AmBank to A3; outlook stable

28 Mar 2019

Singapore, March 28, 2019 -- Moody's Investors Service has today upgraded AmBank (M) Berhad's foreign-currency senior unsecured debt and long-term foreign-currency deposit rating to A3 from Baa1.

At the same time, Moody's has upgraded AmBank's Baseline Credit Assessment (BCA) and adjusted BCA to baa2 from baa3. Moody's has also affirmed AmBank's short-term deposit ratings at P-2, counterparty risk assessments at A3(cr)/P-2(cr) and counterparty risk ratings at A3/P-2. The rating outlook is maintained at stable.

A full list of the bank's ratings can be found at the end of the press release.

RATINGS RATIONALE

The upgrade of AmBank's BCA reflects its successful de-risking of the balance sheet since 2015, that has resulted in slower impaired loan formation. The de-risking has resulted in improved asset quality and stable capitalization amid challenging operating conditions in Malaysia.

AmBank's gross impaired loans ratio was 1.5% at the end of December 2018, broadly stable from March 2018, and has remained below 2% since 2015.

AmBank's Common Equity Tier 1 (CET1) capital ratio rose to 11.4% at the end of December 2018 from 10.9% a year ago, a result of risk-weighted assets (RWA) optimization and earnings retention.

Moody's expects the bank's core profit to remain stable in 2019-2020, driven by its continued tight cost controls and steady revenue growth, offset by normalizing net credit costs.

AmBank's deposit franchise remains smaller than that of the larger Malaysian banks that Moody's rates, despite the bank's active efforts to grow its customer deposit base. Low-cost funding, such as current and savings accounts, constituted around 19% of AmBank's deposit base as of the end of December 2018, below the system average of 26%. The bank's gross loan-to-deposit ratio was 91% at the end of December 2018, in line with the banking system average of 89%.

Moody's does not incorporate affiliate support in the baa2 adjusted BCA of AmBank.

DEPOSIT AND SENIOR UNSECURED RATINGS

AmBank's A3 long-term deposit and senior unsecured debt ratings incorporate a two-notch uplift from its baa2 BCA, reflecting Moody's assumption of a very high probability of extraordinary support for the bank from the Government of Malaysia (A3 stable).

SUBORDINATED MTN RATING

The (P)Ba1 subordinated MTN rating is positioned two notches below AmBank's baa2 adjusted BCA, in line with Moody's standard notching guidance for subordinated debt, with loss triggered at the point of non-viability on a contractual basis.

The extra notch relative to plain vanilla subordinated debt with normal loss severity reflects the potential uncertainty associated with the timing of loss absorption, given that Bank Negara Malaysia -- the country's banking regulator -- has not defined the point at which it would deem the bank to be non-viable.

The (P)Ba1 rating also takes into consideration the financial metrics of AmBank Group, as the trigger event for loss absorption of the subordinated debt is also referenced to the non-viability of AmBank Group, in addition to the issuing entity, AmBank (M) Berhad.

AmBank Group's notional BCA is baa2, the same as the baa2 BCA for AmBank, mainly driven by the consolidated financial strength of AmBank which accounted for 69% of the Group's assets at the end of March 2018.

OUTLOOK

The outlook on the bank's ratings is stable, reflecting Moody's expectation that its credit fundamentals will remain robust over the next 12-18 months.

WHAT COULD CHANGE THE RATINGS UP/DOWN

AmBank's deposit and senior unsecured debt ratings could be upgraded if Malaysia's A3 sovereign rating is upgraded, provided the bank maintains strong standalone financial metrics.

The BCA could be upgraded if the bank further improves its capital adequacy and funding while maintaining stable asset quality metrics.

AmBank's BCA and subsequently its ratings could be downgraded if (1) the bank engages in aggressive organic expansion or acquisitions that significantly weaken its risk profile; (2) price competition among banks intensifies, resulting in a material decline in net income; or (3) the bank's operating environment weakens significantly or it adopts less stringent underwriting practices, resulting in a deterioration in its asset quality and capitalization.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

- Long-term foreign currency deposit rating upgraded to A3 from Baa1, with a stable outlook

- Short-term foreign currency deposit rating affirmed at P-2

- Foreign currency senior unsecured debt rating upgraded to A3 from Baa1, with a stable outlook

- Foreign currency senior unsecured MTN rating upgraded to (P)A3 from (P)Baa1

- Foreign currency subordinate MTN rating upgraded to (P)Ba1 from (P)Ba2

- Long-term local and foreign currency counterparty risk ratings affirmed at A3

- Short-term local and foreign currency counterparty risk ratings affirmed at P-2

- BCA and adjusted BCA upgraded to baa2 from baa3

- Counterparty risk assessments affirmed at A3(cr)/P-2(cr)

- Outlook maintained at stable

AmBank (M) Berhad, headquartered in Kuala Lumpur, reported total assets of MYR107.5 billion (USD26.0 billion) at 31 December 2018.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Simon Chen
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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