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RAM Ratings reaffirms Bank Islam’s ratings

Published on 04 Jan 2021.

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RAM Ratings has reaffirmed Bank Islam Malaysia Berhad’s (the Bank) AA3/Stable/P1 financial institution ratings as well as the ratings of its sukuk programmes. The reaffirmations are premised on Bank Islam’s solid credit metrics, which place it on a strong footing to weather the economic repercussions of the Covid-19 crisis. The ratings also consider expected ready financial support from the Bank’s largest shareholder, Lembaga Tabung Haji (LTH or the Fund), should the need arise. 

Bank Islam is deemed a core investment of LTH. While a proposed corporate restructuring exercise of the Bank’s holding company, BIMB Holdings Berhad (BIMB), will slightly reduce the Fund’s existing 53.0% effective ownership of the Bank to 48.5%, we expect shareholder support to remain intact. Upon completion, the proposed exercise will also see Bank Islam assuming the listing status of BIMB. This exercise is not expected to affect Bank Islam’s ratings. 

Bank Islam has consistently demonstrated robust asset quality. Its gross impaired financing (GIF) ratio came in at a low 0.6% as at end-September 2020, outperforming the industry average of 1.4%. Given challenging economic conditions, we do not rule out a potential rise in delinquencies, particularly after all relief measures expire. That said, the Bank’s asset quality will continue to be supported by non-discretionary salary deduction or salary transfer arrangements, which cover more than half of its consumer financing. 

A prudent build-up of provisions, which includes a cumulative management overlay of RM200 mil, pushed Bank Islam’s credit cost ratio to an annualised 54 bps in 9M FY Dec 2020 (FY Dec 2019: 17 bps). Heftier impairment charges coupled with a sizeable modification loss (RM98 mil) fully negated its stronger trading income, causing the Bank’s pre-tax profit to decline 19% y-o-y to RM526 mil in the same period (9M fiscal 2019: RM646 mil). This translates into an annualised return on risk-weighted assets of 1.8%. While narrower, the Bank’s net financing margin of 2.3% (annualised) stayed among the broadest in the industry, underpinned by a large pool of higher-yielding personal financing facilities. Earnings pressure is unlikely to ease in view of potentially greater provisioning needs. 

Bank Islam has sturdy loss absorption buffers. Its GIF coverage stood at a commendable 279%, providing ample headroom against potential credit losses. The Bank’s common equity tier-1 capital ratio strengthened to 14.3% as at end-September 2020 (end-December 2019: 13.8%), aided by healthy earnings accretion and a larger pool of investment accounts (IAs). The latter lifted the ratio by 2.7 percentage points as IAs absorb the credit risks of the assets being funded. We do not expect BIMB’s proposed corporate restructuring exercise to have any material impact on the Bank’s capital position.

Bank Islam’s issue ratings

Instrument

Rating

Rating Outlook

RM1 bil Subordinated Sukuk Murabahah Programme (2015/2045)

A1

Stable

RM10 bil Sukuk Murabahah Programme (2018/-)

  • Senior Sukuk Murabahah
  • Subordinated Sukuk Murabahah

 

AA3

A1

 

Stable

Stable

 

Analytical contact
Tan Shu Xuan
(603) 3385 2497
shuxuan@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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 2021 by RAM Rating Services Berhad



Rating Rationale

Ratings on Bank Islam Malaysia Berhad

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