- Kuwait Finance House (M) Bhd’s (KFH) decision to discontinue the rating services by RAM Ratings Sdn Bhd has caused industry observers to speculate about the bank’s motives.
An analyst from a local bank-backed brokerage said one reason for KFH’s decision could be because it was not satisfied with the way it had been rated. “On the other hand, it could mean KFH wants to reorganise itself and resolve certain matters before being rated again,” he said....
It does appear that KFH was not satisfied with the way it had been rated.
In April 2010..
- RAM issued a note putting the bank on what it called a “negative rating watch” in connection to the on-going due diligence status audit.
The news article ends with..
- In November 2009, RAM put a negative outlook on the financial institution ratings of KFH, based on the deterioration in the financial metrics of both the bank and its parent.
Last year, KFH aborted two property finance investments – the en bloc purchase of The Icon@Tun Razak for RM237mil from Mah Sing Group Bhd and the en bloc acquisition of Menara YNH, in Jalan Sultan Ismail, Kuala Lumpur, from YNH Property Bhd for RM920mil.
So the obvious question is whether RAM had been unfair to KFH with its ratings?
Here's an interesting article Kuwait Finance House not out of the woods
- Kuwait Finance House not out of the woods
Sarmad Khan
Last Updated: May 27. 2010
The problems are mounting for the largest Sharia-compliant lender in Kuwait.
The asset quality and profitability of Kuwait Finance House (KFH) has “materially deteriorated”, the ratings agency Standards & Poor’s (S&P) says.
In a note late on Wednesday, S&P placed an “A minus” long-term rating on KFH, “with negative implications”.
“The rating action reflects our view that the material deterioration of asset quality indicators and reduced revenue-generating capability, linked to the bad performance of equity and real estate markets, have negatively affected KFH’s financial profile,” said Nicolas Hardy, a credit analyst with S&P.
Many regional lenders such as KFH invested heavily in local equity markets and had huge direct and indirect exposure to a once red-hot property market through their investment subsidiaries and direct holdings.
But the value of those investments has dropped greatly, putting considerable stress on the banks’ balance sheets.
This has prompted ratings actions from agencies such as S&P that increase the risk profile of these lenders and the cost they have to pay to raise funds.
On the plus side in KFH’s case, the bank is still a leader in Kuwait’s Islamic finance sector and has adequate capitalisation, good financial flexibility and strength from significant government support.
Mr Hardy said S&P would analyse in detail the bank’s exposures to the property and construction sectors, and the performance of the bank’s operations and activities outside of Kuwait.
The agency will pay special attention to KFH’s banking subsidiaries in Turkey and Malaysia before it resolves the negative rating.
Shares of KFH, the second largest lender in the country by market value, yesterday gained 2 per cent to 1.020 dinars but they are more than 21 per cent lower than their 12-month peak in June last year.
Apparently S&P also agreed with RAM's assessment.
How?
Don't you think it's crazy that KFH drops RAM rating services because it was not satisfied with the rating given?
KFH's parent, KFIN, has not been doing well as a stock.
Saw this older clip (May 14, 2010) on Star Business: Allowances hit KFH results
- KUALA LUMPUR: The Kuwait Finance House (M) Bhd group recorded a net loss of RM30.9mil for the year ended Dec 31, 2009, due to higher allowances and impairment for losses on financing of RM184.7mil.
It said in a statement that revenue continued to hold up well at RM485mil. Comparative figures for revenue and profit were not provided. However, it said, total assets grew 20.1% to RM11.6bil
ReplyDeleteWhat’s going on in Kuwait Finance House?
Bank said to be sound despite negative developments
PETALING JAYA: Kuwait Finance House (M) Bhd (KFH) has been under the radar quite a bit, recently.
Last week, it discontinued the rating services by RAM Ratings Sdn Bhd.
Last month, its chief executive officer Jamelah Jamaluddin, who was appointed in February, had requested several of its staff to go on leave pending internal investigations into transactions and contractual arrangements undertaken over the years.
The question that seems to be on a lot of people’s minds is: “What’s going on with KFH?’’ With a capitalisation of US$650mil (RM2.13bil), KFH is the largest Islamic bank in Malaysia in terms of capital.
Analysts, when contacted, declined to speculate on the bank’s moves.
In a statement last month, KFH announced that it had recorded a net loss of RM30.9mil for the year ended Dec 31, 2009, due to higher allowances and impairment for losses on financing of RM184.7mil.
It said that revenue continued to hold up well at RM485mil. Comparative figures for revenue and profit were not provided. However, it said total assets grew 20.1% to RM11.6bil.
Last year, KFH aborted two property finance investments – the en bloc purchase of The Icon@Tun Razak for RM237mil from Mah Sing Group Bhd and the en bloc acquisition of Menara YNH in Jalan Sultan Ismail, Kuala Lumpur from YNH Property Bhd for RM920mil.
On paper, it would seem that the bank is riding through a difficult period.
Malaysian Rating Corp Bhd (MARC) head of financial institution ratings Anandakumar Jegarasasingam, however, believes that KFH is doing what it can to deal with whatever issues it might be facing.
“We believe that the bank is doing what it can to resolve old issues and still has a bit of groundwork to do before it can become competitive again,” he said when contacted.
Anandakumar noted that 2009 was a challenging year for the banking sector in general, but he is optimistic about KFH’s prospects, going forward.
“2010 would still be challenging in my view (for KFH) and any recovery would be reflected from 2011.”
A source told StarBiz that KFH was still financially sound, given the firm backing of its parent, Kuwait-based Kuwait Finance House.
“They’re still financially sound – risk-weighted capital is 18.49% as at Sept 30, 2009 – and shareholder commitment to Malaysia is high.”
Anandakumar also concurred that support from the parent was strong, and represented a crucial rating factor in MARC’s rating methodology.
The bank received an “AA+/MARC-1” rating from MARC in April while RAM Ratings, in March, had placed the AA2/P1 financial institution ratings of KFH on ‘’negative rating watch.’’
“Even if its Malaysian operations weaken, the parent would very likely continue to support it,” said Anandakumar. He noted that the parent company had injected US$150mil into KFH as additional capital in December last year.
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contniued...
ReplyDelete“The foregoing provides assurance that there has been no weakening in the level of parent support to KFH,” he said.
At this juncture, what is required is for KFH to improve its management and bring in the right people to steer it in the right direction.
The source, meanwhile, attributed KFH’s lower financial results to a “dynamic and entrepreneurship driven finance model” that it had been aggressively pursuing since it was set up.
“In Malaysia, KFH has been wanting to establish a new Islamic finance model. The bank took on higher risks to achieve this model and that had an impact on its earnings.’’
KFH is expected to come up with a broader agenda on how it intends to change its business model and manage its risks.
It was also reported earlier this month that KFH planned to grow its retail business to make up half of its assets by 2015 from just 4% currently.
The bank, which had focused mainly on investment and corporate banking, is now looking for more stable sources of income, its head of retail and consumer banking Attar Salleh was quoted as saying.
Another major challenge, analysts said, would be how its financial position would be impacted by the changes under the new FRS 139 rules that would take into account the payments for impaired assets.