MARC Ratings has affirmed its financial institution (FI) ratings of A+/MARC-1 on Kenanga Investment Bank Berhad (Kenanga) with a stable outlook.

Kenanga’s strong market position and lengthy experience in the stockbroking industry remain key rating drivers. Apart from stockbroking, the rating also considers the bank’s improving position in investment and wealth management, and its consistently moderate income from its investment banking activities. These strengths are counterbalanced by the susceptibility of its income generation to capital market and economic conditions.

Kenanga is one of the top three stockbrokers in the country by market share with 30.2% in the retail segment for 1H2022 (1H2021: 26.8%), aided by a wide branch network, a sizeable remisier base of 759 individuals and growing online trading activities. Its online share trading platform Rakuten, co-owned with Rakuten Securities, Inc., Japan’s second-largest online brokerage firm, has continued to gain traction in the industry. The total number of accounts on the platform rose to 250,481 as at end-1H2022 (2021: 236,387), contributing to about 14.5% of Kenanga’s trading value.

The group has continued to strengthen its investment and wealth segment. We note that its assets under administration increased significantly by 35.8% y-o-y to RM18.8 billion as at end-2021, mainly due to increased sales and, to some extent, the acquisition of i-VCAP Management Sdn Bhd in February 2021. For 2021, the bank recorded 10.0% y-o-y increase in pre-tax profit to RM148.2 million, supported by higher management fees and brokerage from the improvement in stockbroking activities. However, for 1H2022, Kenanga’s pre-tax profit declined to RM41.8 million (1H2021: RM80.3 million) on the back of subdued market sentiment brought on by concerns on interest rate hikes and rising inflation.

Kenanga’s consolidated Common Equity Tier 1 and total capital ratios stood at 17.5% and 24.9% as at end-1H2022, providing sufficient buffer against potential erosion in asset quality. Its gross impaired loans ratio stood at 4.40% for which full provisions have been made. Deposits from non-bank FIs and business enterprises collectively accounted for 43.4% of total liabilities as at end-June 2022. The high funding concentration poses some liquidity risk to the bank, although this is mitigated by sizeable liquid assets of 36.8% of total assets. Liquidity coverage ratio stood at 155% in 1H2022 (2021: 152%).