Wednesday, January 5, 2011

RAM Ratings reaffirms Kenanga IB's ratings, but lowers long-term ratings to negative

KUALA LUMPUR: RAM Rating Services Bhd has revised the long-term ratings of Kenanga Investment Bank Bhd's (Kenanga IB) from stable to negative on expectation of the bank's significant group level pre-tax loss for the financial year ended Dec 31, 2010.

It said on Wednesday, Jan 5 its expectations of a pre-tax loss was based on additional loan-impairment charges from further write-downs in collateral values and an impairment on its investment in an associate, following the cleanup of the bank's loan book and investments.

'The negative outlook also reflects our concern about the decline in Kenanga IB's market share in stockbroking,' it said.

Despite the negative outlook, RAM Ratings reaffirmed Kenanga IB's long- and short-term financial institution ratings at A3 and P1, respectively.

RAM Ratings said while pre-impairment profits remained healthy, Kenanga IB's group level pre-tax loss of RM29.4 million in the first nine months of FY2010 (9M FY Dec 2009: pre-tax profit of RM15.2 million) stemmed from RM58.6 million of impairment charges on its corporate loans and share margin-financing facilities.

As at end-September 2010, the Bank's Tier-1 and overall risk-weighted capital adequacy ratios stood at 37.7% and 38.4%, respectively (end-December 2009: 38.7% and 39.5%).

The ratings agency said in light of the expected losses, the Bank's parent, K&N Kenanga Holdings Berhad had made a RM40 million capital injection in November 2010.

'Based on our estimates, RAM Ratings does not expect a deterioration in the bank's capitalisation level,' it said.

Given Kenanga IB's focus on maintaining a highly liquid position, its liquid-asset ratio had increased to 84.6% as at end-September 2010 (end-December 2009: 73.4%), through significant cash holdings as well as short-term funds and government securities.

However, RAM Ratings said Kenanga IB's rating outlook may be revised to stable if it can demonstrate sustainable profits and successfully defend its market share in the stockbroking business; the ratings may be downgraded if its loss position and business fundamentals deteriorate beyond RAM Ratings' expectations.

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