RAM Ratings assigns AA3 and A1 ratings to AEON Credit’s proposed Senior and Subordinated Sukuk Wakalah

Published on 18 Dec 2019.

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RAM Ratings has assigned respective AA3/Stable and A1/Stable ratings to Senior and Subordinated Sukuk under AEON Credit Service (M) Berhad’s (AEON Credit or the Company) proposed RM2.0 Billion Sukuk Wakalah Programme for the issuance of Senior Sukuk Wakalah and/or Subordinated Sukuk Wakalah. The ratings consider the expectation of ready extraordinary support from AEON Credit’s ultimate parent, AEON Co., Ltd. (AEON Co or the Group), as well as the Company’s established franchise in the Malaysian consumer finance market, its strong profitability and manageable gearing level. The ratings are moderated by more vulnerable asset quality due to a significant exposure to lower-income borrowers, and reliance on wholesale funding.

AEON Credit represents AEON Co’s footprint in the Malaysian consumer financing market. In FY Feb 2019, the Company contributed 19% of the pre-tax profit of AEON Financial Service Co., Ltd. (AFS) – its immediate parent and the financial services arm of the Group. AFS exerts influence over the Company’s strategies and decisions through its 61.9% stake and the secondment of key management personnel from Japan.

AEON Credit’s loan portfolio has been expanding rapidly, with annual growth averaging 19% over the past five years. A similar growth trajectory is expected in FY Feb 2020, with the Company’s receivables portfolio already expanding 10% to RM9.6 bil in the first 6 months of the fiscal year. While AEON Credit’s asset quality indicators continued to hold up with a gross impaired financing ratio of 2.0% as at end-August 2019, its credit cost ratio was a higher annualised 4.0% in 1H FY Feb 2020 (FY Feb 2019: 2.2%). As a result, the Company’s pre-tax profits were a lower RM180 mil (1H FY Feb 2019: RM239 mil). In the absence of sizeable reversals of provisions booked on the first day of Malaysian Financial Reporting Standard 9 adoption, AEON Credit’s credit cost ratio is expected to revert to historical trends of 3%-4% going forward. In view of the Company’s rapid growth, asset quality pressures could arise as its portfolio seasons. 

The Company’s return on assets and return on equity, which clocked in at a respective annualised 4.0% and 23.8% in 1H FY Feb 2020, are still among the highest between domestic non-bank financial institutions. AEON Credit’s strong profitability stems from its robust net interest margins (1H FY Feb 2020: 12.2%), although this may trend lower, as it grows the middle-income customer base. 

AEON Credit’s gearing level is expected to stay below 6 times over the near to medium term (end-August 2019: 5.1 times; end-May 2019: 4.6 times). The Company’s debt maturity profile is well spread out. As at end-May 2019, 81% of its borrowings were long-term facilities versus 67% of financing facilities with remaining tenures exceeding one year.


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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Ratings on AEON Credit Service (M) Berhad