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RAM Ratings reaffirms Bank Muamalat’s A2/Stable/P1 ratings

Published on 02 Jul 2019.

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RAM Ratings has reaffirmed Bank Muamalat Malaysia Berhad’s (the Bank) financial institution ratings (FIRs) at A2/Stable/P1. The ratings consider the Bank’s sturdy capitalisation, which is counterbalanced by its small stature as well as its weaker asset quality compared to the industry’s. We have also reaffirmed the A3/Stable rating of the Bank’s RM1 billion Subordinated Sukuk Murabahah Programme (2016/2036). The one-notch difference between Bank Muamalat’s long-term FIR and the rating of the Subordinated Sukuk reflects the subordination of the facility to the Bank’s senior unsecured obligations.

Bank Muamalat stands among the smaller banks domestically, making up around 1% of the banking system’s outstanding financing and deposits. Its financing book grew a marginal 2.3% y-o-y as at end-December 2018 (banking industry: 5.6%; Islamic banking industry: 11.0%), largely attributable to financing extended for the purchase of securities after the Bank became an Amanah Saham Nasional Berhad unit trust agent in January 2018. The Bank remains highly dependent on corporate investment deposits, with retail deposits amounting to only 10% of total deposits (industry: 37%) – a reflection of its weaker retail deposits franchise.

In terms of asset quality, the Bank’s gross impaired financing (GIF) ratio of 2.2% and GIF coverage ratio of 77% as at end-December 2018 were weaker than industry average of 1.5% and 113% respectively. We note that the Bank is adopting a more conservative approach in respect of new financing, having tightened its underwriting standards to some extent. It is also working towards building more provisioning for its personal financing portfolio.

While Bank Muamalat’s annualised net financing margin (NFM) of 2.3% was wider than its peers’ (eight anchor banks’ average NFM: 2.1%), its return on risk-weighted assets of 1.5% remained among the lowest in the industry, given the Bank’s high operating expenses and low non-financing income. The Bank’s capitalisation is deemed sturdy, with its common equity tier-1 and total capital ratios standing at a respective 14.7% and 17.5% as at end-December 2018.

 

Analytical contact
Sophia Lee
(603) 3385 2619 
sophia@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



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Ratings on Bank Muamalat Malaysia Berhad

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