RAM Ratings reaffirms Bank Rakyat’s AA2/P1 ratings

Published on 06 Dec 2019.

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RAM Ratings has reaffirmed Bank Kerjasama Rakyat Malaysia Berhad’s (Bank Rakyat or the Bank) AA2/Stable/P1 financial institution ratings. Concurrently, the ratings of the Bank’s sukuk, issued through its funding conduits (Imtiaz Sukuk II Berhad and Mumtaz Rakyat Sukuk Berhad), have also been reaffirmed.

The reaffirmation is premised on Bank Rakyat’s strong foothold in personal financing (PF) extended to civil servants and its sturdy loss-absorbing capacity. Although we are cautious of its rapidly expanding mortgage book, the Bank has a good buffer against any potential credit losses with its sturdy capital position. As at end-June 2019, Bank Rakyat’s Basel I Tier-1 capital and total capital ratios (excluding its profit in 1H fiscal 2019) had improved to a respective 21.1% and 22.5% (end-December 2017: 20.1% and 21.6%) from further earnings accretion. In addition, the reaffirmation also incorporates our view of ready support from the Government if needed, given Bank Rakyat’s status as a cooperative bank-cum-developmental financial institution.

As PF made up 78% of its total receivables, Bank Rakyat’s fortunes closely correlate with the performance of this portfolio. The introduction of more stringent regulations and underwriting criteria for PF facilities a few years ago has been softening the Bank’s financing growth, with even a slight contraction in fiscal 2018. With a long-term strategy of limiting PF to 70% of its financing portfolio, Bank Rakyat has been striving to expand its non-PF portfolios such as home, auto, Ar-Rahnu (pawn broking) and SME financing. Although we recognise the benefits of diversification, these will take time to materialise.

All the while, Bank Rakyat’s asset quality has been supported by its PF portfolio. The bulk of this portfolio benefits from repayments via non-discretionary salary-deduction and transfer mechanisms. Due to higher levels of recoveries in its financing to business enterprises, the Bank’s overall gross impaired financing ratio had eased slightly to 2.1% as at end-June 2019 (end-December 2017: 2.2%). Nevertheless, we notice a slippage in the asset quality of its residential mortgage portfolio; we understand that remedial measures have been implemented and will closely monitor the credit health of the Bank’s mortgage portfolio. Owing to seasonal effect on its PF portfolio, the Bank’s annualised credit-cost ratio climbed up to 81 bps in 1H fiscal 2019 (fiscal 2018: 30 bps). Meanwhile, efforts to wind down its relatively sizeable equity portfolio are regarded positively given the investment losses the Bank had incurred in fiscal 2018.

As a result of mark-to-market investment losses, Bank Rakyat’s pre-tax profit shrank to RM1.9 bil in fiscal 2018 (fiscal 2017: RM2.1 bil). Subsequent revaluation gains resulted in a healthier RM867 mil profit in 1H fiscal 2019 (1H fiscal 2018: RM735 mil). With respective return on risk-weighted assets of 2.4% and an annualised 2.2% in fiscal 2018 and 1H fiscal 2019, Bank Rakyat’s profitability indicators are still deemed satisfactory. 

While we give credit to the progress it has achieved, Bank Rakyat’s proportion of individual deposits as well as its current and savings account (CASA) deposits of a respective 17% and 8% remained low relative to the industry’s standards of 38% and 26% as at end-June 2019. Its depositor base stayed concentrated as its ten largest depositors accounted for about a third of its total customer deposits on the same date.

Table 1: Bank Rakyat’s issue ratings



Imtiaz Sukuk II Berhad

RM9 billion Islamic MTN and Islamic CP Programme (2013/2023)


Mumtaz Rakyat Sukuk Berhad

RM5 billion Subordinated Sukuk Murabahah Programme (2016/2036)




Analytical contact
Goh Kwan Kheen, Timothy 
(603) 3385 2495

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

Rating Rationale

Ratings on Bank Kerjasama Rakyat Malaysia Berhad