RAM Ratings assigns A1 to Alliance Islamic Bank

In a filing to the Bursa Malaysia, AFG announced that its net profit for the quarter narrowed by 4.4% in contrast to RM135.60mil in the same quarter of the previous financial year. This was despite a moderate 4.8% increase in revenue year-on-year (y-o-y) to RM378.64mil in Q3

KUALA LUMPUR: RAM Rating Services Bhd has assigned A1/Stable/P1 ratings to Alliance Islamic Bank Bhd, the Islamic banking subsidiary of Alliance Bank Malaysia Bhd. 

The ratings agency said on Thursday the rating wass anchored by Alliance Islamic’s importance as the Islamic banking arm of the group, as well as the support it receives from Alliance Bank. 

Incorporated in 2007, Alliance Islamic had been set up to house the carved-out Islamic banking operations of its parent.

“As one of the smallest Islamic banks in Malaysia, Alliance Islamic faces significant competition from its larger peers. 

“In this regard, the Bank’s ability to build on the Group’s network of customers for cross-selling initiatives supports its business growth. 

“Under a universal-banking platform, Alliance Islamic reaps economies of scale by leveraging on Alliance Bank’s infrastructure, risk-management framework and branch network,” it said.

With a gross impaired-financing (GIF) ratio of 0.7% and a GIF coverage ratio of 164% as at end-September 2016, Alliance Islamic enjoys healthy asset quality. 

Although this may weaken as the bank favours facilities with higher risk-adjusted returns, any such deterioration is expected to be manageable. 

As the group’s personal-financing facilities are primarily booked under Alliance Islamic, the Bank has a relatively large proportion (14%) of personal-financing facilities. 

“The credit risks of personal financing exposures are managed holistically at group level; in this respect, personal financing facilities contribute to only 3% of the group’s financing exposure.

“Financing income has traditionally been the main component of Alliance Islamic’s earnings; contributions from non-financing-income sources only accounted for about 6% of the Bank’s gross income in 1H FY Mar 2017. The Bank’s capital base is of high quality, primarily consisting of common-equity tier-1 (CET-1) capital. 

“Boosted by a RM100mil injection from its parent in December 2015, the Bank’s CET-1 capital ratio had strengthened to 13.2% as at end-September 2016 (end-March 2015: 11.0%),” said RAM Ratings.