PETALING JAYA: The proposed disposal of AMMB Holdings Bhd’s life insurance and takaful businesses is expected to lead to an increase of about 40 basis points (bps) in its common equity tier-1 (CET1) capital, a metric which measures a bank’s financial strength.
To recap, earlier this week, AMMB and MetLife International Holdings LLC proposed to dispose of their life insurance and takaful businesses to Great Eastern, for RM1.12bil.
TA Research anticipates that the proposed transaction would result in a price-to-book value of about 1.2 times.
“We estimate that the proposed disposal would strengthen AMMB’s CET1 by about 40 bps. AMMB reported CET1 of around 12.6% in the recent first quarter which ended June 30, 2023,” it said in a report.
The research firm further noted that it does not foresee any substantial impact on the group’s earnings resulting from the disposal of its life insurance business.
This expectation is based on the fact that the life insurance segment constitutes about 5% of the group’s total non-interest income in its financial year ended March 31, 2023.
AMMB, which is the holding company of AmBank, announced that AmMetLife Insurance Bhd (AML) would merge with Great Eastern Life Assurance (M) Bhd (GELM), post-completion of the sale while AmMetLife Takaful Bhd (AMT) would merge with Great Eastern Takaful Bhd (GETB).
AMAB Holdings Sdn Bhd, a wholly-owned unit of AMMB, had entered into an implementation agreement with MetLife, GELM and GETB.
Under the current structure, the ownership of AML and AMT is split evenly between AMAB and MetLife.
AMAB holds 50% minus one share in AML and MetLife owns the remaining 50% plus one share.
For AMT, AMAB owns 50% plus one share and MetLife has 50% minus one share. Under the proposed sale, GELM and GETB will purchase 100% of the share capital of AML and AMT.
The proposed sale will also see AMMB entering into a 20-year new bancassurance and bancatakaful partnership.
TA Research expressed its optimism about the exclusive 20-year banca agreements
“According to the announcement, these agreements will enable the distribution of life insurance and family takaful products through AMMB’s banking subsidiaries, AmBank (M) Bhd and AmBank Islamic Bhd, throughout Malaysia,” it said.
At this juncture, the research outfit made no changes to its earnings projections pending more clarity on this proposed disposal from management.
“The proposed sale is contingent upon obtaining regulatory approvals from Bank Negara and the Minister of Finance, as well as the Monetary Authority of Singapore,” it added.
TA Research reiterated a “buy” call on AMMB, with an unchanged target price of RM4.30 per share.