Published on 09 Jul 2020.
RAM Ratings has reaffirmed HSBC Amanah Malaysia Berhad’s (the Bank) AAA/Stable/P1 financial institution ratings and the AAA/Stable rating of its RM3 bil Multi-Currency Sukuk Programme (2012/2032). The reaffirmation is premised on HSBC Amanah’s strategic role as the Islamic banking arm of HSBC Bank Malaysia Berhad (rated AAA/Stable/P1) and one of HSBC Holdings plc’s two global “Amanah” or Islamic banking hubs. The Bank is operationally integrated with HSBC Malaysia and leverages on the HSBC Group’s global franchise, international network and expertise. Parental support is envisaged to be readily available when needed. As such, the Bank’s ratings are equated with its parent, HSBC Malaysia.
As at end-March 2020, HSBC Amanah’s gross impaired financing (GIF) ratio was a weaker 2.9% (end-December 2018: 2.5%; industry average: 1.6%), mainly owing to an uptick in restructuring and rescheduling activity within its personal financing portfolio (which made up 8% of total financing). The Bank’s higher-than-industry GIF ratio is also attributed to the Group’s more conservative financing impairment classification policy. Adjusting for differences from industry practice, HSBC Amanah’s GIF ratio would be a lower 2.1%.
Although delinquencies are likely to creep up after the six-month automatic moratorium on financing repayments ends, we expect the impact to be manageable in view of the Bank’s tighter underwriting and risk management in recent years. Moreover, its robust common equity tier-1 capital ratio standing at 14.4% as at end-March 2020 provides the Bank with sufficient buffer against potential credit deterioration. Meanwhile, higher impairment charges pre-emptively set aside by HSBC Amanah in 1Q FY Dec 2020 owing to the gloomier economic outlook had caused its annualised credit-cost ratio to spike to 180 bps (FY Dec 2018: 50 bps).
HSBC Amanah posted a pre-tax profit of RM229.4 mil in FY Dec 2019 (FY Dec 2018: RM211.6 mil), 8% higher y-o-y due to higher financing income from financial assets and deposit placements with financial institutions. The increase in the Bank’s current and saving account deposits (+54%) also contributed to an overall lower cost of funds relative to the Islamic banking industry. Pre-tax profit, however, plunged to RM20.3 mil in 1Q FY Dec 2020 (1Q FY Dec 2019: RM58.6 mil) as a result of heftier forward-looking impairment charges on financing (RM73.3 mil; 1Q FY Dec 2019: RM29.9 mil). We expect the Bank’s profitability to remain under pressure in view of the low profit rate environment, muted financing growth and higher impairment charges given the weaker macroeconomic environment. Like other banks, HSBC Amanah may incur a modification charge arising from hire-purchase and other fixed-rate financing subject to the moratorium. The Bank’s liquidity coverage and net stable funding ratios clocked in well above 100% as at end-March 2020.
Jeremy Noel Paul
(603) 3385 2556
(603) 3385 2577
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Ratings on HSBC Amanah Malaysia Berhad