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RAM Ratings reaffirms Standard Chartered Saadiq’s AAA/Stable/P1 ratings

Published on 24 Dec 2019.

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RAM Ratings has reaffirmed Standard Chartered Saadiq Berhad’s (Saadiq or the Bank) AAA/Stable/P1 financial institution ratings. The ratings reflect our expectation of continued strong support from its parent, Standard Chartered Bank Malaysia Berhad (Standard Chartered Malaysia or the Group, rated AAA/Stable/P1), given the Bank’s strategic role as the Group’s Islamic banking arm. Saadiq’s operations are highly integrated with its parent – the Bank leverages on Standard Chartered Malaysia’s branch network, technical expertise and risk management systems to a large extent.

Saadiq ranks among the smaller Islamic banks in Malaysia, with less than 1% of the segment’s assets as at end-September 2019. The Bank’s financing portfolio has largely tilted towards secured financing in recent years, following the Group’s strategy of de-risking its unsecured portfolio. As at end-September 2019, Saadiq’s property financing and personal financing facilities made up a respective 61% and 2% of its financing portfolio (end-December 2012: 20% and 34%).

Owing to deterioration in its residential property and working capital financing segments as well as a contracting base, Saadiq’s gross impaired financing (GIF) ratio weakened to 1.2% as at end-September 2019 (end-December 2017: 0.8%), albeit remaining below the banking industry’s 1.6% at the same date. The Bank’s loss absorption buffers stayed strong, with its GIF coverage ratio (including regulatory reserves) and common equity tier-1 capital ratio standing at 154% and 19.8%, respectively, as at end-September 2019. 

A substantial increase in customer deposits had improved the Bank’s funding profile. Notably, current and savings account (CASA) deposits jumped 73% in 9M fiscal 2019, constituting a commendable 56% of customer deposits as at end-September 2019 (industry average: 26%; end-December 2018: 41%) – in line with the Group’s strategy of growing CASA deposits at Saadiq. In addition, the Bank can rely on its parent for funding via profit-sharing investment account (PSIA) placements, although these had reduced considerably in 9M fiscal 2019, accounting for only 36% of total profit-bearing funds as at end-September 2019 (end-December 2018: 44%).

Due to its shrinking financing base and lower fee income, Saadiq’s pre-provision profit declined to RM43.1 mil in FY Dec 2018 (FY Dec 2017: RM47.8 mil). Although the Bank’s net financing income continued to decline 4.6% y-o-y in 9M fiscal 2019, its pre-provision profit was propped up by higher fee income. That said, Saadiq’s cost to income ratio remained high at 64%. In addition, the Bank’s net financing margin was still relatively low at 1.72%, partly owing to the 25-bp OPR cut in May 2019.

 

Analytical contact
Liang Huey Jean, CFA
(603) 3385 2495
jean@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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