| Thu 9 May 2002, 0:00 | | AMB Holdings Limited. |
|
Press release
International credit rating agency Global Credit Ratings ("GCR") has
accorded a BBB+ (Triple B plus) long term and A2 (A two) short term rating
to AMB Holdings Ltd ("AMB"). This is defined as an organisation with
adequate protection factors, sound company fundamentals and liquidity
factors, exhibiting a good certainty of timely payment.
According to Pedja Kovacevic, a senior banking analyst at GCR, the ratings
are supported by AMB's strong strategic positioning and its particular
expertise in the area of black economic empowerment transactions, which
continues to positively affect the deal flow and support the group's non-
interest income. The bank is very well capitalised and, supported by its
conservative risk management policies, AMB continues to exhibit relatively
high asset quality. "Notwithstanding the high concentrations and the short
term nature of AMB's deposit book", Kovacevic said, "liquidity risk is
mitigated by the bank's very high liquidity ratios and the fact that a
significant percentage of total deposits is sourced from group related
parties".
However, according to Kovacevic, AMB's rating was constrained by the
market's negative sentiment towards small and medium sized banks, brought
about by the demise of a number of such institutions over the past few
years, and especially the events succeeding the collapse of Saambou. The
market's prejudice towards the mid-sized banks limits AMB's ability to
source longer term deposits and grow its assets, and as such negatively
affects its margin income. Although the bank's key profitability ratios
remain in line with that of its peers, the bank's increased dependency on
the more volatile non-interest income was noted, as well as the fact that
the non-recurring gains represented as much as one third of its total
operating income. However, GCR took cognisance of management's efforts to
diversify the group's revenue stream and expand the investment banking side
of its business.
GCR's executive director, Grant Kelly, went on to say that market's lack of
confidence remains one of the major challenges facing the mid-sized banks in
South Africa. "One cannot, however, assume unilaterally that all the mid-
sized banks constitute the same level of risk", says Kelly. By definition an
A2 is a fairly strong investment grade rating, and even A3 rated
institutions (which is one level below an A2, but still in the investment
grade category) should be considered to be of a good enough quality to be
able to timeously meet all their obligations. Unfortunately, there is a
perception in the market that all mid-sized banks (often wrongly
referred to as A2 banks) exhibit higher than average risk, with a greater
level of uncertainty regarding their credit quality status. Kelly went on to
say that a number of the previously failed banks were incorrectly
categorised as A2 banks and it is due to the failure of these institutions
that the negative sentiment towards quality banks that correctly fall into
the A2 category was perpetuated.
