KUALA LUMPUR, March 31 — Moody’s has kept AMMB Holdings Berhad’s (AmBank Group) A3 rating but changed the outlook to negative over the RM 2.83 billion settlement with the government for its involvement in the 1MDB scandal.
The negative outlook reflects uncertainty over AmBank’s ability to restore its capitalisation to pre-settlement levels over the next 12 to 18 months, the ratings agency said in a credit note issued today.
“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.
“The recovery in its capitalization will depend on AmBank Group’s divestitures, the timing of which is uncertain, and regulatory approval for its plans to implement risk-weighted asset optimization via the foundation internal rating based (FIRB) approach in April 2022,” it added.
The affirmation of AmBank’s A3 rating was based on the assessment of a very “high probability” of “government support in times of need”, Moody’s said.
“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,” the agency said.
MMB Holdings Berhad had agreed to pay RM2.83 billion to the Malaysian government as global settlement on all outstanding claims and actions over AmBank Group’s involvement in the 1Malaysia Development Berhad (1MDB) matter, the Finance Ministry announced on February 26.
The settlement is part of the Malaysian government’s continuing efforts against all parties directly or indirectly involved in 1MDB and 1MDB-linked entities to recover funds, the ministry had said.
The deal was said to have been reached in just three days.
Moody’s said the negative outlook meant an upgrade of AmBank’s ratings in the short term is 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,” it added.
AmBank’s ratings could also be downgraded if the bank’s capitalisation does not recover to pre-settlement levels because of an inability to execute capital strengthening initiatives, the agency said.
“A sharp deterioration in the bank’s asset quality and profitability that hurts capital generation could also lead to downward rating pressure,” the note said.
