RAM Ratings reaffirms Sabah Credit Corporation’s AA1/Stable/P1 sukuk ratings

Published on 26 Jul 2021.

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RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Credit Corporation’s (SCC or the Corporation) outstanding sukuk instruments. The reaffirmation is premised on our expectation of ready financial support from the Sabah state government (the State) – which wholly owns the Corporation – if required. Support has been demonstrated through the subordination of state borrowings to SCC’s debt securities and the conversion of some of these borrowings into share capital.

SCC’s financing book primarily comprises personal financing (PF) facilities, which made up 98% of total financing as at end-December 2020. Almost all the facilities are extended to civil servants and are repaid through non-discretionary salary deductions. This alleviates risks associated with the borrower’s capacity and willingness to pay. In FY Dec 2020, the Corporation’s financing base contracted by 2% amid fierce competition from commercial banks. 

SCC’s underlying asset quality remains sound, albeit having deteriorated slightly. The provision of a three-month repayment moratorium to Sabah state civil servants (constituting 20% of total financing) and higher bankruptcy-related delinquencies weakened its gross impaired financing (GIF) ratio to 3.7% as at end-December 2020 (end-December 2019: 3.1%). Unlike banks, the deferment remains subject to the three-stage provisioning model of Malaysian Financial Reporting Standard (MFRS) 9. This caused a rise in impaired financing, particularly from financing that was already in arrears due to administrative issues prior to the moratorium. The Corporation’s slower write-offs also contribute to a relatively higher GIF ratio compared to peers. 

Adjusted to exclude impaired PF facilities that are 12 months or more in arrears, and those under moratorium that were technically impaired but have since resumed repayment for two consecutive months, SCC’s GIF ratio would be a better 2.2% (end-December 2019: 2.0% adjusted). We expect any further asset quality slippage to be contained, backed by the non-discretionary salary deductions of its civil servant-centric PF base. GIF coverage stayed healthy at 106% while credit cost moderated slightly to 59 bps in fiscal 2020 (fiscal 2019: 61 bps). 

While SCC’s heavy reliance on short-term borrowings exposes the Corporation to refinancing and liquidity risks, we believe funding and liquidity support from the state government will be readily extended if needed. The Corporation recently offered both state and federal government staff another three-month moratorium on an opt-in basis. Depending on the take-up rate, SCC may have to make additional drawdowns from its sukuk programmes or banking facilities to address the cashflow disruption.

Profitability stayed healthy in FY Dec 2020. A lower funding cost owing to successive rate cuts last year widened SCC’s margins, which in turn lifted pre-tax profit to RM98 mil (fiscal 2019: RM95 mil). Gearing improved to 3.2 times as at end-December 2020 (end-December 2019: 3.7 times) as a result of healthy earnings accretion and decreasing debt amid slower financing growth.

Table: SCC’s issue ratings



  1. RM3.5 billion Islamic Medium-Term Notes Programme (2014/2039)
  2. RM1 billion Islamic Medium-Term Notes Programme (2011/2031)
  3. RM1.75 billion Islamic Commercial Papers Programme (2021/2028)



Analytical contacts
Jeremy Noel Paul 
(603) 3385 2556

Wong Yin Ching, CFA
(603) 3385 2555


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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Ratings on Sabah Credit Corporation