KUALA LUMPUR (Nov 17): Fitch Ratings has assigned AmBank (M) Berhad a long-term issuer default rating (IDR) of 'BBB-' with a Stable Outlook and a short-term IDR of 'F3', and expects the bank’s loan growth to recover in 2022.

In a statement Tuesday (Nov 16), Fitch said that at the same time, it has assigned a viability rating (VR) and government support rating (GSR) of 'bbb-'.

On the key rating drivers, Fitch said AmBank's Long-Term IDR is at the same level as its GSR and VR.

It said the latter reflects Fitch's view of the bank's standalone credit profile, which is underpinned by its reasonable franchise as a medium-sized bank in Malaysia, as well as its moderate asset quality and risk profile.

This is offset by profitability and capitalisation that lag domestic peers, it said.

“Malaysia's public health conditions have improved along with high Covid-19 vaccination rates, which have allowed economic activity to progressively resume and support banks' operating environment.

“We assigned AmBank's operating environment score at 'bbb' with a stable outlook, in line with that of the Malaysian banking sector,” it said.

Fitch said AmBank's risk profile of 'bbb' is above what its business profile would indicate, as its underwriting standards and asset quality have historically been on par with the system average.

The rating agency said AmBank’s non-performing loan (NPL) ratio has benefited from government debt relief measures amid the Covid-19 pandemic and has hovered between 1.5%-1.7% since end-2019 (end-June 2021: 1.5%).

“We expect the ratio to peak in 2022 as relief programmes roll off, but for the four-year average of the asset-quality core metric to remain at around 2% for the next few years.

“Our outlook on asset quality is stable, reflecting adequate headroom to withstand a degree of deterioration that we expect from the lingering risks,” it said.

Fitch said the bank's four-year average of operating profit/risk-weighted assets is the lowest among major Malaysian peers.

“We believe this reflects its weaker competitive position.

“We expect loan growth to recover in 2022, along with improving cost efficiency and a strengthening net interest margin, returning closer to a pre-pandemic level of profitability in the next few years.

“Our outlook on the bank's 'bb+' earnings and profitability score is stable,” it said.