Published on 19 May 2020.
RAM Ratings has reaffirmed Public Islamic Bank Berhad’s (the Bank) AAA/Stable/P1 financial institution ratings as well as the respective AAA/Stable and AA1/Stable ratings of the senior and subordinated sukuk under the Bank’s RM5 billion Sukuk Murabahah Programme (2014/2044). The ratings are premised on Public Islamic’s strategic importance as Public Bank Berhad’s (the Group, rated AAA/Stable/P1) Islamic banking arm. As such, support from the Group is envisaged to be readily available, if required. While the economy faces adverse repercussions from the Covid-19 pandemic, we expect the Group to be able to navigate the unprecedented challenges. Public Bank has demonstrated strong resilience during credit downcycles in the past, underlined by its robust risk management capabilities.
Reflecting the Group’s prudent and disciplined underwriting standards, Public Islamic’s gross impaired financing (GIF) ratio came in at a robust 0.5% as at end-December 2019 (industry: 1.5%) while its credit cost ratio was a benign 9 bps. Although Bank Negara Malaysia’s six-month financing repayment moratorium would keep the Bank’s asset quality indicators largely steady this year, it could defer the crystallisation of credit risk to 2021 should borrowers’ weaknesses stretch beyond the payment holiday. In addition, similar to other Islamic banks, Public Islamic may need to incur a modification charge arising from its hire purchase and other fixed-rate financing under moratorium. Even so, the Bank is on a strong footing to ride out the downturn due to its very low base of impaired financing at present. In addition, its sturdy GIF coverage ratio of 224% (including regulatory reserves) and sound common equity tier-1 capital ratio of 12.4% will help buttress the Bank against Covid-19 stresses.
As at end-February 2020, Public Islamic’s liquidity coverage and net stable funding ratios stood at 151% and 100%, respectively, in compliance with the regulatory requirement. While it is still highly exposed to depositor concentration risk, we take comfort in the Bank’s ability to derive funding support from the Group, if needed.
Wong Yin Ching, CFA
(603) 3385 2555
(603) 3385 2577
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Ratings on Public Islamic Bank Berhad