Published on 05 Jul 2019.
RAM Ratings has reaffirmed AFFIN Islamic Bank Berhad’s (AFFIN Islamic or the Bank) financial institution ratings of AA3/Stable/P1. The ratings reflect AFFIN Islamic’s strategic importance as the Islamic banking subsidiary of AFFIN Bank Berhad (the Group, rated AA3/Stable/P1). As such, we expect strong parental support to be readily extended in times of need. Concurrently, we have reaffirmed the following ratings of AFFIN Islamic’s Sukuk Programme:
RM5 billion Islamic Medium Term Note Programme
* combined limit of RM5 billion
Underscored by the Group’s Priority Islamic Policy, implemented in 2016, AFFIN Islamic has registered rapid financing growth in recent years. Its financing base expanded by 21% in FY Dec 2018 (FY Dec 2017: +29%), driven by residential mortgages. This trend has however reversed, with the Bank’s financing contracting a slight 2% (annualised) in 1Q FY Dec 2019 as a result of slower growth in residential property financing. The contraction was also attributable to the Bank’s working capital financing portfolio reducing further, in line with the Group’s plan to exit some of its lower-yielding and chunky corporate financing.
The Bank’s asset quality is weaker, largely owing to three lumpy impairments occurring in 4Q fiscal 2018. This had translated into a higher adjusted gross impaired financing (GIF) ratio of 2.1% (exclude financing by AFFIN Bank under the restricted investment accounts placement) as at end-March 2019 compared to 1.1% as at end-December 2017. The adjusted GIF coverage (including regulatory reserves) as at end-December 2018 stands at 100%. Meanwhile, the Bank’s annualised credit cost ratio stood at a lower 8 bps in 1Q fiscal 2019 (FY Dec 2018: 11 bps).
While its pre-tax profit rose 31% y-o-y in FY Dec 2018 on account of strong financing growth and lower impairment charges, AFFIN Islamic’s return on risk-weighted assets is still weaker than that of peers, coming in at an annualised 0.9% in 1Q FY Dec 2019 (FY Dec 2017: 1.2%). The ratio is weighed down by thin margins in view of the Bank’s increasing dependence on costly fixed deposits as it prepares to meet the impending net stable funding ratio requirement. Going forward, rising funding costs are expected to further pressure margins amid the still keen competition for deposits and given the recent overnight policy rate cut.
AFFIN Islamic’s capitalisation is still deemed satisfactory, with its common equity tier-1 capital ratio clocking in at 10.8% as at end-March 2019 (end-December 2017: 15.1%), albeit lower due to robust financing growth coupled with the effect of adopting Malaysian Financial Reporting Standard 9.
Chow Kah Mun
(603) 3385 2501
(603) 3385 2577
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
Ratings on AFFIN Islamic Bank Berhad