Published on 03 Aug 2020.
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.
* Subject to a joint limit of RM3.5 billion
Tan Shu Xuan
(603) 3385 2497
(603) 3385 2577
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Ratings on Sabah Credit Corporation