RAM Ratings reaffirms Sabah Credit Corporation’s AA1/Stable/P1 sukuk ratings

Published on 03 Aug 2020.

Share Tweet Email

RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Credit Corporation’s (SCC or the Corporation) outstanding sukuk instruments. The reaffirmation reflects our expectation of ready financial support from the Sabah state government (the State) in times of need. This has been demonstrated by the subordination of SCC’s state government borrowings to the Corporation’s sukuk securities, the conversion of such borrowings into share capital, and the extension of letters of support for the Corporation’s sukuk facilities. Wholly owned by the State, SCC plays an active part in Sabah’s socio-economic development.

SCC’s financing book remained anchored by personal financing facilities (98% of financing book) as at end-December 2019. Almost all these facilities – which are primarily extended to civil servants – are repaid via non-discretionary salary deductions, which limit the Corporation’s credit risk. SCC’s financing book expanded by a mere 1% in fiscal 2018 amid keen competition from other players in the personal financing segment. The Corporation is expected to roll out government housing financing in 2H 2020 to diversify its monoline business model.  

Slower gross impaired financing (GIF) formation, larger write-offs and higher recoveries kept SCC’s GIF ratio broadly unchanged at 3.1% as at end-December 2019. In view of the tough economic climate, SCC has granted state civil servants (23% of gross financing) a three-month deferment on financing repayments. While we do not rule out some slippage in asset quality, the impact is likely to be manageable. The credit quality of SCC’s financing book will continue to be supported by direct salary deduction arrangements for its pool of personal financing facilities. The Corporation’s GIF coverage stayed sturdy at 120% as at end-December 2019 while its credit cost ratio eased slightly to 61 bps in fiscal 2019 (fiscal 2018: 68 bps) on account of higher recoveries.

SCC’s heavy reliance on wholesale funding renders it susceptible to refinancing and liquidity risks, particularly given the growing proportion of short-term borrowings. That said, we believe funding and liquidity support from the state government will be readily extended if needed. Margin expansion and a larger impairment writeback contributed to a higher pre-tax profit of RM95 mil in fiscal 2019 (fiscal 2018: RM84 mil). SCC’s leverage is still comfortable, with gearing improving to 3.7 times as at end-December 2019 (end-December 2018: 4.3 times) on the back of stronger profit accretion.

Table 1: SCC’s issue ratings



  1. RM1.75 billion Islamic Commercial Papers Programme (2014/2021) and RM3.5 billion Islamic Medium-Term Notes Programme (2014/2039)*
  2. RM1 billion Islamic Medium-Term Notes Programme (2011/2031)



* Subject to a joint limit of RM3.5 billion



Analytical contact
Tan Shu Xuan
(603) 3385 2497

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 2020 by RAM Rating Services Berhad

Rating Rationale

Ratings on Sabah Credit Corporation