Published on 16 Aug 2021.
RAM Ratings has assigned an AAA/Stable rating to Bank Simpanan Nasional’s (BSN or the Bank) proposed RM3.5 billion Islamic Medium-Term Notes Sukuk Wakalah Programme (2021/-). Concurrently, the Bank’s financial institution ratings have also been rated AAA/Stable/P1. The ratings are premised on the high likelihood of government support, given the Bank’s important public policy role and strong linkage to the Government of Malaysia (GoM). In accordance with Section 20 of the Bank Simpanan Nasional Act 1974, all deposits with BSN are guaranteed by the GoM.
Formerly known as the Post Office Savings Bank, BSN was incorporated under the Bank Simpanan Nasional Act 1974. Wholly owned by the GoM through the Ministry of Finance, the Bank’s mandate is to improve the economic welfare of Malaysians by encouraging savings and thrift. BSN is governed by the Development Financial Institutions Act 2002, which comes under the purview of Bank Negara Malaysia.
As one of the vehicles used to roll out various government initiatives, the Bank is a channel through which cash aid and subsidies are disbursed to Bantuan Prihatin Rakyat recipients and micro financing is extended under government funding schemes or grants. BSN also has a financial inclusion mandate to serve the underserved and unserved communities. With 390 branches in 96% of these communities across 886 mukim (small administrative districts), the Bank boasts the largest branch network in Malaysia. To further widen its reach, BSN adopts an agent banking model that allows the public to perform basic banking services in various non-bank premises such as grocery stores and petrol kiosks.
In view of its focus on retail customers, the Bank’s loan book is diversified, with no lumpy, corporate exposures. Personal financing (PF) made up a sizeable 44% of the Bank’s loan book as at end-September 2020, followed by residential mortgages (42%). BSN’s gross impaired loan ratio was a low 1.3%, supported by the six-month automatic loan repayment moratorium as well as the healthy credit quality of its PF segment – 94% of loans under this portfolio are held by civil servants and repaid through non-discretionary salary deductions. Nonetheless, we remain cautious on downside risks as delinquencies are likely to emerge after Covid-19 relief measures end. This would be particularly pertinent to mortgage financing provided to the B40 income segment and youth groups, which made up about 40%-50% of the Bank’s lending portfolio. As of January 2021, about 20% of loans extended by BSN were under the targeted repayment assistance programme.
BSN’s Basel 1 core capital and total capital ratios stood at a respective 12.1% and 17.9% as at end-September 2020 (end-December 2019: 12.8% and 17.3%). Although lower than that of development financial institution peers, the Bank’s capitalisation is adequate relative to its risk profile. While downside risks are magnified amid current macroeconomic challenges and uncertainties, BSN’s robust gross impaired loan coverage ratio of 245% (including regulatory reserves) helps cushion against future impairments and the erosion of its capital.
Despite a broad net interest margin of 3.3% in 9M FY Dec 2020 (FY Dec 2019: 3.9%) and relatively high proportion of non-interest income, BSN’s profitability has traditionally been dragged down by significant operating expenses to maintain its broad nationwide branch network and high headcount – a result of the Bank’s developmental role. BSN’s cost-to-income ratio has hovered above 75% over the last five years. The Bank posted a pre-tax profit of RM314 mil in 9M FY Dec 2020, which translated into a relatively weak return on risk-weighted assets of 1.6% on an annualised basis. We anticipate future earnings to be pressured by management overlays as the Bank beefs up its provisioning buffer.
(603) 3385 2496
Wong Yin Ching, CFA
(603) 3385 2555
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