RAM Ratings reaffirms P1 rating of AEON Credit’s RM 1 billion ICP Programme

Published on 23 Sep 2019.

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RAM Ratings has reaffirmed the P1 rating of AEON Credit’s RM1 billion Islamic CP Programme. The rating reaffirmation is premised on our expectation of ready extraordinary support from AEON Credit’s ultimate parent, AEON Co., Ltd. (AEON Co or the Group), a Japan-based leading retail and financial services group in Asia Pacific. AEON Credit’s established franchise in the Malaysian consumer finance market is also a factor, as is the Company’s strong profitability and moderate gearing level. The ratings are constrained by the Company’s weak asset quality due to a significant exposure to lower-income borrowers. 

While remaining elevated and weak compared to peers’, AEON Credit’s credit cost ratio was a lower 2.2% in FY Feb 2019 (FY Feb 2018: 3.3%). Supported by better delinquency trends, reversals of sizeable provisions booked on the first day of Malaysian Financial Reporting Standard 9 (MFRS 9) adoption had contributed to lower impairment charges. The setting aside of additional provisions had also contributed to a robust gross impaired financing (GIF) coverage ratio of 337% as at end-May 2019. AEON Credit’s GIF ratio stood at 1.9% as at the same date (end-February 2018: 2.3%). Given its rapid loan growth and significant exposure to lower-income segment customers, AEON Credit’s asset quality may face pressure going forward. The Company’s credit cost ratio could revert to historical trends of 3%-4%. 

AEON Credit’s loan portfolio grew 19% in FY Feb 2019, driven by expansion in its three main segments of personal, motorcycle and automobile financing. This, with lower credit costs and better non-interest income, fueled an increase in pre-tax profit to RM472 mil (FY Feb 2018: RM398 mil). The Company’s fiscal 2019 return on assets and return on equity were 5.8% and 30.7% respectively, still among the highest of domestic non-bank financial institutions. AEON Credit’s strong profitability stems from robust net interest margins (FY Feb 2019: 12.1%). Although narrowing as the Company grows its middle-income customer base, its margins are expected to still provide a sufficient buffer against the higher recognition of expected credit losses under MFRS 9.

While higher at 4.7 times as at end-May 2019 (end-February 2018: 3.7 times), AEON Credit’s gearing level has been manageable, supported by a sizeable RM432 mil issuance of irredeemable convertible unsecured loan stocks in September 2017. AEON Credit is inherently dependent on external borrowings to fund its operations, which exposes the Company to refinancing risk. That said, approximately 80% of its borrowings are long-term facilities, largely matching the maturity profile of its receivables.


Analytical contact
Ann Kimberly Lee 
(603) 3385 2533

Media contact
Padthma Subbiah
(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

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