Published on 23 Jun 2021.
RAM Ratings has reaffirmed MBSB Bank Berhad’s (the Bank) A2/Stable/P1 financial institution ratings as well as the ratings of its sukuk programme (Table 1). Concurrently, the A2/Stable/P1 corporate credit ratings of the Bank’s holding company, Malaysia Building Society Berhad (MBSB or the Group), have also been reaffirmed. Despite its structural subordination as a non-operating holding company, MBSB’s ratings are equated to that of the Bank to reflect the former’s debt-free status at the holding company level.
The reaffirmations are underpinned by our expectation that MBSB’s strong loss absorption buffers will sufficiently cushion against greater provisioning needs. The Group’s already weak asset quality could come under further pressure if the Covid-19 crisis persists. The credit risk from its personal financing portfolio, which constitutes more than half of gross financing, will be moderated by the non-discretionary salary deduction feature of financing extended mostly to civil servant borrowers. The ratings also incorporate our assessment of a moderate likelihood of support from the Group’s largest shareholder, the Employees Provident Fund, if required.
MBSB’s gross impaired financing (GIF) ratio ascended to 5.8% as at end-March 2021 (end-December 2019: 5.2%). The deterioration during the 15-month period emanated purely from its non-retail portfolio. Owing to heftier actual impairment charges and forward-looking provisioning, MBSB’s credit cost ratio came in at 1.1% in FY Dec 2020 compared to 0.2% a year earlier, the latter having benefited from a large writeback. Its annualised credit cost ratio stayed elevated at 1.9% in 1Q FY Dec 2021. In view of the resurgence of Covid-19 infections, we remain wary of delinquencies creeping up after the expiration of relief measures. Financing facilities under assistance programmes accounted for 8% of MBSB Bank’s portfolio as at end-December 2020.
The Group’s respective GIF coverage (including regulatory reserves) and common equity tier-1 capital ratios of 104% and 20.8% as at end-March 2021 serve as sturdy loss absorption buffers, providing sufficient headroom to withstand an anticipated uptick in delinquencies.
MBSB’s net financing margin (NFM) is among the broadest in the industry, thanks to its large pool of lucrative personal financing facilities. As the bulk of these are fixed-rate financing facilities, the active repricing of fixed deposits widened the Group’s annualised NFM to 3.5% in 1Q FY Dec 2021 amid successive rate cuts last year (FY Dec 2020: 3.3%; FY Dec 2019: 2.9%). Earnings were impacted by a sizeable moratorium-driven modification loss and spike in impairment charges in FY Dec 2020. We see some upside potential in the Group’s profitability this year due to the gradual unwinding of modification charges and continued deposit repricing. The extent of improvement will hinge on provisioning needs.
MBSB’s funding profile remains constrained by its weak deposit gathering ability. High-cost fixed deposits made up nearly all the Group’s customers deposits while the proportion of individual deposits was just 13% as at end-March 2021, substantially lower than the industry average of 38%. MBSB’s minimum liquidity coverage ratio and net stable funding ratio were a respective 142% and 100% in 2020.
RM10.0 bil Wakalah Bi Al-Istithmar Sukuk Programme (2019/-)
* combined limit of RM10.0 bil
Tan Shu Xuan
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Ratings on MBSB Bank Berhad