RAM Ratings reaffirms AA3 and A1 ratings of AEON Credit’s Senior and Subordinated Sukuk Wakalah Programme

Published on 06 Nov 2020.

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RAM Ratings has reaffirmed the respective AA3/Stable and A1/Stable ratings of AEON Credit Service (M) Berhad’s (AEON Credit or the Company) Senior and Subordinated Sukuk Wakalah Programme as well as the P1 rating of its RM1 billion Islamic CP Programme. The reaffirmation is premised on our expectation of ready extraordinary support from AEON Credit’s ultimate parent, AEON Co., Ltd (the Group), and immediate holding company, AEON Financial Service Co. Ltd. The Group is a Japan-based leading retail and financial services group in Asia Pacific. 

Our rating action also considers the Company’s established franchise in the Malaysian consumer finance market, strong earnings and moderate gearing. Given its significant exposure to low-income borrowers, the economic impact of the Covid-19 pandemic will likely affect the Company’s asset quality indicators in the near future. However, AEON Credit’s sturdy earnings, even after considering possible erosion, are expected to constitute sufficient buffer against potentially higher credit losses.

AEON Credit’s low-income customers are susceptible to adverse changes in economic conditions, especially in the current testing period when more companies are implementing wage cuts and unemployment is edging up (4.7% in August 2020 vs average of 3.3% in 2019). Although the six-month loan repayment moratorium introduced by BNM does not apply to AEON Credit, it had deferred loan repayments for April and May as the disruption of collections due to the Movement Control Order had partly resulted in a heightened credit cost of 4.6% (annualised) for 1H FYE Feb 2021 (FYE Feb 2020: 3.4%). 

Repayments subsequently resumed in June 2020 and the Company has launched the AEON Relief Programme to help customers settle the two months’ due. Due to the pre-emptive provisioning of RM134 mil which AEON Credit has made in 1H FYE Feb 2021, gross impaired financing coverage was a higher 417% as at end-August 2020 (end-February 2019: 331%) and will probably remain elevated in the foreseeable future.

Despite a reduced pre-tax profit of RM390 mil in FYE Feb 2020 (FYE Feb 2019: RM472 mil) owing to higher impairment charges, AEON Credit’s  respective return on assets and return on equity of 4.1% and 25.6% in that period are still among the highest in RAM’s portfolio of domestic non-bank financial institutions. The Company’s strong profitability is anchored on robust net interest margins (FYE Feb 2020: 11.9%) that make up for its riskier lending profile. In 1H FYE Feb 2021, modification loss of RM28 mil and hefty impairment charges slashed its pre-tax profit by one-third to RM114 mil. Looking ahead, the Company’s earnings are likely to be squeezed by potentially higher impairment charges over the next few quarters, although the deterioration is expected to be manageable.  

AEON Credit’s gearing ratio (adjusted for fair value of hedging reserves) is still deemed moderate at 4.9 times as at end-August 2020 (end-February 2020: 5.1 times). Although AEON Credit is inherently dependent on external borrowings to fund its operations, its debt maturities are well spread out while cash balances and unutilised credit facilities were sufficient to cover 2.9 times its short-term borrowings as at end-August 2020.


Analytical contact
Goh Kwan Kheen, Timothy 
(603) 3385 2496

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
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