Ambank's Outlook Can be Revised to Stable if Its Capital Recovers to Pre-1MDB Settlement Levels - Moody's

KUALA LUMPUR, March 31 (Bernama) -- An upgrade of Ambank (M) Bhd’s ratings is unlikely but the outlook could be revised to stable if the Malaysian bank’s capital recovers to the pre-1MDB settlement levels, or there is a sustained improvement in the bank’s asset quality and profitability, over the next 12 to 18 months. On March 12, 2021, Moody’s affirmed AmBank A3 long-term foreign currency deposit rating but changed the outlook to negative from stable, following AMMB Holdings Bhd's US$681.2 million (RM2.83 billion) settlement with the government (A3 stable) on Feb 26, 2021. “The negative outlook reflects uncertainty over AmBank's ability to restore its capitalisation to pre-settlement levels over the next 12 to 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,” it said in a statement. 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. The affirmation of AmBank’s A3 rating incorporates our 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. On the downside, Moody’s 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,” Moody’s said. -- BERNAMA