RAM Ratings reaffirms AA3 and A1 ratings of AEON Credit’s Senior and Subordinated Sukuk Wakalah Programme

Published on 01 Oct 2021.

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RAM Ratings has reaffirmed the respective AA3/Stable and A1/Stable ratings of AEON Credit Service (M) Berhad’s (AEON Credit or the Company) Senior and Subordinated Sukuk Wakalah Programme as well as the P1 rating of its RM1.0 bil Islamic Commercial Papers Programme. 

The reaffirmation is premised on our expectation of extraordinary support from AEON Co., Ltd (the Group) – the Company’s ultimate parent – and AEON Financial Service Co. Ltd, its immediate holding company. AEON Co., Ltd is a leading Japan-based retail and financial services group. 

The ratings also consider the Company’s track record and strong presence in the consumer financing segment. Despite business disruptions from various movement restrictions over the past 1.5 years, AEON Credit has proven its ability to manage asset quality challenges with rigorous collection efforts and sound provisioning measures. 

Asset quality has held up better than expected, notwithstanding a sizeable exposure to low-income earners. The Company’s collections and delinquency trend was not significantly impacted. This, in our view, is attributable to unprecedented support packages rolled out by the government, particularly for segments hard hit by the pandemic including the B40 income group, and vigorous monitoring by AEON Credit. As at end-August 2021, the Company’s gross impaired financing and credit cost ratios eased to 2.2% and 0.8%, respectively (end-February 2021: 2.5% and 3.7%).

Asset quality pressure nonetheless remains, especially in view of protracted economic recovery. Provisions were lower y-o-y in 1H FY Feb 2022, helped by a better delinquency trend and healthy recoveries, but the full impact of movement restrictions imposed in June 2021 has yet to surface. In this regard, AEON Credit is well positioned to absorb a further fallout from the crisis, with lucrative net interest margins (three-year average: 11.7%) underpinning its profitability. Impairment allowances remained ample, covering 342.7% of impaired financing as at end-August 2021.

Operating income before impairment charges stayed resilient at RM753.4 mil in fiscal 2021, aided by lower operating costs. However, heftier impairment charges, including a management overlay of RM59.9 mil (or 16% of total impairment charges) and modification loss of RM45.3 mil, weighed down pre-tax profit for the year, causing it to slide 16.8% y-o-y to RM324.9 mil. Lower impairment charges and a higher volume of transactions in 1H FY Feb 2022 enabled the Company to report a pre-tax profit of RM318.0 mil for the period (+180.0% y-o-y).

Gearing (adjusted for fair value of hedging reserves) improved further to 4.1 times as at end-August 2021 (end-February 2021: 4.4 times). AEON Credit is inherently dependent on external borrowings to fund its operations but debt maturities are well spread out while cash balances and unutilised credit facilities are sufficient, covering 4.4 times the Company’s short-term borrowings as at end-February 2021.


Analytical contacts
Chan Yin Huei
(603) 3385 2498

Goh Kwan Kheen, Timothy
(603) 3385 2496


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.

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