AmBank remains financially resilient despite RM2.8b settlement

Bank has adequate capital buffers to absorb the settlement without an immediate need to raise additional equity capital, says group CEO


AMMB Holdings Bhd (AmBank) is expected to take two to three years to recoup the RM2.83 billion settlement payment made to the Finance Ministry (MoF) involving 1Malaysia Development Bhd (1MDB) transactions.

Hong Leong Investment Bank Bhd analyst Chan Jit Hoong said the timeline is made based on a profit run-rate of RM1 billion to RM1.5 billion per annum.

After factoring the RM2.83 billion settlement into its financial model, the analyst lowered AmBank’s financial year of 2021 (FY21) bottom line to a net loss of RM1.9 billion and also cut FY22-FY23 profit by 7%.

AmBank group CEO Datuk Sulaiman Mohd Tahir (picture) said the settlement will undoubtedly have a material impact on the group’s 4Q21 earnings and consequently FY21 results, but the bank has adequate capital buffers to absorb the global settlement without an immediate need to raise additional equity capital.

“However, as a consequence of the global settlement, the group will not be proposing any final dividend for FY21. The group would like to assure investors and stakeholders that we remain financially resilient and are ready to capitalise on the opportunities ahead with our refreshed Focus 8 strategy,” he said in a statement yesterday.

Chan forecast AmBank’s FY21 book value will fall by 14% causing FY22-FY23 return on equity to rise by 0.5 percentage points (ppt).

“In the immediate term, the common equity tier-1 (CET1) ratio will take a hit of 2.5ppts to 11% but still above the 7% Bank Negara Malaysia has set as the minimum requirement. Also, AmBank will be freezing FY21 dividends.

“The bank is planning to raise Tier-2 debt capital to improve balance sheet flexibility (which we seenoharmasweareinalowinterest rate climate) despite liquidity coverage ratio and net stable funding ratio of over 100%. That said, we do not expect a cash call from shareholders since it was in operation at 11% CET1 ratio back in 2016 and also paid dividends without needing this exercise,” Chan said in a report yesterday.

RHB Investment Bank Bhd analysts Liew Wai Hoong and Fiona Leong said the settlement is expected to slash 15% and about 94 sen off its shareholders’ equity and book value per common share (BVPS).

The analysts said share price would fall towards around RM2.22 should the full 94 sen be priced in and AmBank would be valued at 0.4 time of price/book value at this price, identical to the trough level seen during the pandemic.

“As the group rebuilds capital after the settlement, lowering its cash dividend or a dividend reinvestment plan is among the options other than equity raising,” the analysts said in a report.

AmBank’s current management has a strategy that includes strengthening corporate governance practices and investing a sizable amount in various processes to make it stronger.

Its net profit fell 31% year-on-year (YoY) to RM263.83 million in the third quarter ended Dec 31, 2020, while revenue dropped by 11.8% YoY to RM2.09 billion.

Its nine-month net profit (9M21) declined to RM866.315 million from RM1.09 billion in 9M20 due to higher impairment charges. Revenue for 9M21 shrank by 9.4% YoY to RM6.44 billion.

AmBank shares, which are suspended, will resume trading tomorrow. The shares closed at RM3.16 last Friday, valuing the banking group at RM9.52 billion.

Read our previous report here

AMMB has enough capital to absorb RM2.8 billion impact on 1MDB