KUALA LUMPUR (March 31): Moody’s Investors Service, which has revised its outlook on AmBank (M) Bhd to negative from stable earlier this month, said an upgrade in the bank’s ratings is unlikely now but the bank’s outlook could be revised to stable if the bank’s capital recovers to levels seen before its settlement with the government for its role in the 1Malaysia Development Bhd (1MDB) issue.
An outlook revision is also possible if there is a sustained improvement in the bank’s asset quality and profitability over the next 12 to 18 months, Moody’s said in a credit opinion today on the bank.
The credit opinion was issued following its March 12 decision to revise the bank’s outlook to negative from stable after AMMB Holdings Bhd’s RM2.83 billion 1MDB settlement in February. At the time, Moody’s also affirmed the bank’s A3 long-term foreign currency deposit rating.
“The negative outlook reflects uncertainty over AmBank’s ability to restore its capitalisation to pre-settlement levels over the next 12-18 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. 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,” Moody’s said.
It further explained that the affirmation of AmBank’s A3 rating incorporates its 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.
Moody’s also said it 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.
On Feb 26, the banking group agreed to pay RM2.83 billion to the Malaysian government as settlement on all outstanding claims and actions in relation to the AmBank Group’s involvement in the 1MDB corruption scandal. The settlement was on top of the RM53.7 million penalty previously imposed by Bank Negara Malaysia and paid by AmBank Group.
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