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RAM Ratings reaffirms ratings of MBSB Bank’s Tranche 1 to 4 Structured Covered Sukuk

Published on 23 Jun 2021.

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RAM Ratings has reaffirmed the AAA rating of Tranche 1 and the AA1 ratings of the Tranche 2 to 4 Structured Covered Sukuk issued by MBSB Bank Berhad (MBSB Bank or the Bank) under its RM2,295 million Structured Covered Sukuk Murabahah Programme. All the ratings carry a stable outlook. The Structured Covered Sukuk is a dual-recourse instrument with direct recourse to MBSB Bank as a senior unsecured obligation upon default, as well as to the relevant Tranche Cover Assets backed by the underlying portfolio of personal financing (PF) facilities for civil servants, originated by the Bank.

Structured Covered Sukuk

Issue Size
(RM million)

Rating/Outlook

Overcollateralisation ratio (%) as at end-December 2020

Tranche 1

215

AAA/Stable

555.27

Tranche 2

505

AA1/Stable

95.65

Tranche 3

765

AA1/Stable

115.85

Tranche 4

810

AA1/Stable

92.43

 

The AAA rating of Tranche 1 reflects the Tranche 1 Sukuk’s fully cash-collateralised position. As such, the ability to meet obligations in respect of Tranche 1 in the event of the Bank’s default will no longer depend on future collections of the Tranche Cover Assets under the Structured Covered Sukuk’s second recourse feature. This allows the rating to pierce the four-notch uplift from MBSB's long-term financial institution rating (FIR) of A2 (click here for further information on the Bank).

The reaffirmation of the Tranche 2 to 4 ratings is premised on the Bank’s FIRs, the transaction’s “average” I-Risk, and the superior credit support afforded by overcollateralisation (OC) levels that correspond with the ratings. While the respective OC ratios are adequate to support a higher rating, the transaction ratings are limited by the four-notch rating uplift from the Bank’s long-term rating under RAM’s rating criteria for Covered Bonds. 

During the review period, the performances of all four tranches of the Structured Covered Sukuk remained within our expectations despite more than 90% of PF underlying each of the Tranche Cover Assets falling under the six-month automatic moratorium from April to September 2020. Collections were interrupted during this period but recovered to near-usual levels post-moratorium. We expect collections performance to remain stable, with minimal impact from the Bank’s Financial Flexibility Programme (affecting ~15% of total securitised PF) and the mandatory contribution of a portion of civil servant allowances to the National Disaster Relief Trust Fund to support Covid-19-related expenses. Moreover, the robust OC levels provide sufficient buffers against a higher incidence of default, with adequate liquidity to absorb at least another six-month of interrupted collections.

Prepayments, on the other hand, were lower during the early stage of the moratorium, having subsequently retraced their usual trend. Except for Tranche 4 Sukuk where prepayments were within our high and low-prepayment scenarios, the remaining three tranches recorded levels exceeding our high-prepayment assumptions. Considering the longer remaining tenure of the PF vis-à-vis the sukuk, higher than expected prepayment is credit positive for the transaction. The serial redemption of the sukuk moderates negative carry. 

 

Analytical contact
Liew Kar Ling
(603) 3385 2586
karling@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: MBSB Bank Berhad Tranche 1

Rating Rationale: MBSB Bank Berhad Tranche 2

Rating Rationale: MBSB Bank Berhad Tranche 3

Rating Rationale: MBSB Bank Berhad Tranche 4

Ratings on MBSB Bank Berhad

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