MARC Ratings has affirmed its financial institution (FI) ratings of A+/MARC-1 on Kenanga Investment Bank Berhad (Kenanga) with a stable outlook.
The ratings reflect Kenanga’s strong market position and lengthy experience in the domestic stockbroking industry. The ratings further consider the investment bank’s improving position in the investment and wealth management segment as well as its established presence in the investment banking space; the bank derives low-to-moderate income from its investment banking activities. These strengths are counterbalanced by the business’ vulnerability to capital market and economic conditions.
Kenanga is one of the top three stockbrokers in the country, with a 29.8% market share in the retail segment in 1H2023 (1H2022: 30.2%), supported by a 748-strong remisier base. Online share trading through its share trading platform Rakuten – which Kenanga co-owns with Japan’s second-largest online brokerage firm Rakuten Securities, Inc. – has also gained traction. The number of accounts utilising Rakuten has grown to 266,936 as at end-June 2023, from 257,251 in 2022; online trading contributed to approximately 14.5% of Kenanga’s trading value in 1H2023.
With continued growth, the investment and wealth management segment’s revenue and contribution to Kenanga’s total revenue increased to RM117.2 million and 31.0% in 1H2023, from RM100.9 million and 16% in 2019. Earnings generation remains supported by a high level of recurring management fees at RM96.9 million or 42% of Kenanga’s total non-interest income in 1H2023. Assets under administration stood at RM20.9 billion as at end-June 2023. During the period, the segment formed 59% of Kenanga’s profits.
Trading value dropped sharply to RM53.4 billion as at end-June 2023 (-13.3% y-o-y) on weak market sentiment, leading to a reduction in brokerage fees by 9.8% to RM80.8 million in 1H2023. This contributed to the lower non-interest income during the period (RM232.5 million in 1H2023 versus RM244.1 million in 1H2022). Overall, Kenanga posted slightly lower pre-tax profit of RM35.8 million in 1H2023 (1H2022: RM41.8 million), driven by lesser brokerage fees, lower net interest income and higher operating expenses.
Kenanga reported a consolidated Common Equity Tier 1 ratio of 16.9% and a total capital ratio of 24.8% as at end-1H2023. While lower than the 20.9% and 28.9% recorded as at end-2022, Kenanga’s capital ratios still had ample buffer against regulatory requirements. Kenanga largely relies on short-term wholesale customer deposits for funding, with deposits from non-bank FIs and business enterprises collectively accounting for 45.6% of its total liabilities as at end-June 2023.
Nevertheless, Kenanga’s high liquidity ratios mitigate its funding concentration risk, with its liquid assets ratio standing at 52.5% as at end-1H2023. Liquidity coverage ratio also remained strong at 163% as at end-June 2023 (end-2022: 135%), reflecting its sizeable number of high-quality liquid assets.