TEXT-RAM affirms Alliance rating
KUALA LUMPUR, Nov 6 - RAM Ratings has reaffirmed the respective long- and short-term ratings of Alliance Financial Group Berhad's RM300 million Commercial Papers/Medium-Term Notes Programme at A2 and P1, respectively, with a stable outlook.
The ratings hinge on the credit strength of Alliance Bank Malaysia Berhad , the core subsidiary of Alliance FG. RAM Ratings reaffirmed Alliance Bank's long and short term financial institution ratings at A1 (positive outlook) and P1, respectively, in November 2009.
Alliance Bank and its subsidiaries are collectively known as the Alliance Banking Group or the Group. Although the Alliance Banking Group is among the smallest of the 9 anchor banks in Malaysia, it has been gaining traction in the consumer and small and medium-sized enterprises segments.
This is underpinned by the transformation strategies put in place since 2005. Alliance Bank's loan asset quality has continued improving, notes Promod Dass, RAM Ratings Head of Financial Institution Ratings. Its gross non-performing-loan ratio eased to 4.47% as at end-March 2009 (end-March 2008: 7.00%), compared to the banking industrys average of 3.96% as at the same date.
This was a result of less new NPL formation in the past few years, combined with the Groups recovery efforts and expanding loan base.Without the benefit of robust loan recoveries, as experienced in FY Mar 2008, the Alliance Banking Groups pre-tax profit tumbled 39.07% to RM304.82 million in FY Mar 2009.
Hefty impairments on its holdings of collateralised loan obligations had crimped its return on equity and return on assets to 9.53% and 0.83%, respectively, as at end-1Q FY Mar 2010 (end-FY Mar 2009: 11.35% and 0.96%).
Going forward, we expect the Groups pre-tax profit to stay strong, aided by a broader NIM, some loan recoveries and write-backs of earlier provisions to offset greater impairments on its CLO investments.
Meanwhile, AFGBs leverage compares well to that of its similarly rated peers. Its gearing ratio was kept at a healthy 0.33 times as at end-June 2009.
If the dividends received from its subsidiaries were reclassified as operating cashflow, the Company's funds from operations debt coverage ratio would come up to an adequate 0.16 times as at end-FY Mar 2009.