Moody's upgrades AmBank's BFSR to D

Moody's has upgraded AmBank's Bank Financial Strength Rating to D from D-. It further confirmed the bank’s foreign currency deposit ratings of Baa2/P-3 with stable outlooks.

This rating action concludes the review for possible upgrade initiated on 3 December 2009.

"The upgrade of AmBank's BFSR recognises the steady improvements in the bank's asset quality and its ongoing efforts to improve recurring earnings," said John Tham, a Moody's VP/Senior Credit Officer.

Moody's believes that the very high probability of government support for AmBank should the need arise is reflected by the 3-notch lift in the long-term deposit rating of Baa2 from the BCA of Ba2.

AmBank's gross non-performing loan ratio eased to 3.4 percent in December 2009 from 3.9 percent in September 2009 due to collections and the slower pace of NPL formation. Moody's notes that at this level, the NPL ratio compares favorably with the system average of 3. percent. Meanwhile, its NPL reserve coverage rose to 92.6% from 82.8 percent over the same period.

Moody's notes that its improved level of reserve coverage and reasonably sound Tier 1 capital adequacy ratio of 9.4% strengthen protection against loss, an important ratings factor.

Moreover, management is proactively managing its balance sheet in a number of ways to strengthen recurring earnings. Firstly, AmBank continues to grow low-cost deposits to reduce its above-average but – at the same time -- falling cost of funds. Secondly, it is progressively rebalancing its balance sheet with variable-rate loans and hedging to address potentially higher interest rates, given its sizeable fixed-rate loan book. Thirdly, it is pursuing disciplined growth in its niche businesses -- such as auto and other retail loans -- to protect margins, while also diversifying its loans with safer corporate credits to limit credit costs and greater diversification of earnings streams in the markets-related business.