AmBank’s ability to restore capitalisation over 12-18 months uncertain: Moody’s

KUALA LUMPUR: There is uncertainty over AMMB Holdings Bhd’s (AmBank Group) ability to restore its capitalisation over the next 12-18 months following its RM2.83 billion settlement with the government late February, said Moody’s Investors Service.

Moody’s said AmBank would absorb the bulk of the large settlement at a time when it was facing a slowdown in its internal capital generation due to rising credit costs.

“The recovery in its capitalisation will depend on AmBank 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 (FIRB) approach in April 2022,” it said in a statement yesterday.

On March 12, Moody’s affirmed AmBank’s A3 long-term foreign-currency deposit rating and changed the outlook to negative from stable, following the settlement.

The affirmation of AmBank’s A3 rating incorporates the firm’s 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 (BCA), based on AmBank Group’s systemic importance as the sixth-largest banking group in Malaysia by assets, with AmBank as the group’s main operating entity,” it added.

Moody’s said given the negative outlook, an upgrade of AmBank’s ratings was unlikely.

“However, we could revise the outlook to stable if the bank’s capital recovers to pre-settlement levels, or there is a sustained improvement in the bank’s asset quality and profitability, over the next 12-18 months.

“We could downgrade AmBank’s ratings if the bank’s 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 downward rating pressure,” it added.

Source: NST