Published on 23 Jun 2021.
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
Overcollateralisation ratio (%) as at end-December 2020
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.
Liew Kar Ling
(603) 3385 2586
(603) 3385 2577
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