Affin Bank, Affin Hwang revamp spurred by BNM rules

Affin said in a stock exchange filing that both parties were not able to finalise the transaction documents for the sale of the stake in time and in accordance with the central bank

KUALA LUMPUR: The proposed restructuring of the Affin Holdings Group which will see Affin Bank Bhd at the top of the banking group is spurred by Bank Negara Malaysia’s (BNM) regulation on financial holding companies, says RAM Rating Services Bhd.

It said the Affin Holdings’ corporate exercise to collapse its financial holding company (FHC) structure and lift Affin Bank to the apex of the banking group is not expected to affect the ratings of Affin Bank,  Affin Hwang Investment Bank Bhd or Affin Bank’s debt programme. Both Affin Bank and Affin Hwang are units of Affin Holdings.  

The proposed exercise will see the transfer of Affin Hwang as well as the group’s money-broking and insurance entities, from Affin Holdings to Affin Bank. 

In addition, Affin Bank will assume the listing of Affin Holdings. 

The proposed restructuring - pending approval from the relevant regulators and targeted to be completed by end-2017 - is expected to elevate Affin Bank’s common-equity tier-1 ratio above 13%, from 12.4% as at end-September 2016. 

The operations and business profile of the entire AFFIN group are expected to remain unchanged after the reorganisation. 

Co-head of RAM’s Financial Institution Ratings Sophia Lee said: “This proposed reorganisation is spurred by BNM’s regulation on financial holding companies, introduced in 2015.

“In recent years, RHB Bank and Alliance Bank have undergone similar exercises,” adds Lee. 

BNM’s Capital Adequacy Framework for Financial Holding Companies (Banking Groups) requires FHCs to have minimum capital-adequacy requirements, similar to banks. 

This is to ensure that FHCs are adequately capitalised to support their group-wide risks, address multiple gearing of capital and excessive leverage within financial groups, and achieve greater consistency in the disclosed capital ratios of financial groups headed by banks and FHCs. 

In addition, FHCs are allowed to recognise, in their own capital calculations, some of the capital instruments issued by their subsidiaries, although such recognition is limited.