RAM Ratings reaffirms Bank Rakyat’s AA2/P1 ratings

Published on 15 Nov 2021.

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RAM Ratings has reaffirmed Bank Kerjasama Rakyat Malaysia Berhad’s (Bank Rakyat or the Bank) AA2/Stable/P1 financial institution ratings (FIRs). We have also reaffirmed the ratings of the Bank’s sukuk, issued through its funding conduits (see Table 1). 

The reaffirmation is premised on Bank Rakyat’s strong foothold in personal financing (PF) and the Bank’s robust loss absorption capacity. Bank Rakyat boasts the largest share of the Malaysian market for PF, which is mostly extended to civil servants. Recent asset quality deterioration is expected to be amplified by the gradual expiration of pandemic-related relief measures. The Bank’s ample loss absorption buffers however will cushion further potential impairments. The rating reaffirmation also incorporates our view of ready support from the Government if needed, given Bank Rakyat’s status as a cooperative-cum-developmental financial institution (DFI).

As of end-August 2021, financing under relief came up to about half of Bank Rakyat’s total financing. While the actual impact is yet to be determined, modification losses from moratoria and other forms of assistance offered to borrowers since April 2020 could amount to a significant RM1.2 bil. Under regulatory forbearance measures granted to DFIs, the Bank is temporarily shielded from the full impact of modification loss, with a relatively small earnings impact in FY Dec 2020 and FY Dec 2021. The balance, which will be reflected through a downward adjustment of retained earnings on 1 January 2022, is estimated to shave off about 120 bps from the Bank’s capital ratios. This impact is manageable given its current solid capitalisation, afforded by a Basel I tier-1 capital ratio of 22.2% as at end-June 2021.

Bank Rakyat’s overall gross impaired financing (GIF) ratio edged up to 2.2% as at end-June 2021 (end-December 2019: 1.9%), primarily driven by the PF portfolio’s weaker GIF ratio of 1.2% (end-December 2019: 0.6%). Job losses or income cuts suffered by the borrowers due to the pandemic had led to higher defaults from its non-Angkasa collected PF portfolio.  The Bank’s credit cost ratio surged to 0.9% in FY Dec 2020 and 1H FY Dec 2021 (FY Dec 2019: 0.5%). Financing under relief doubled after the reintroduction of a six-month moratorium in July 2021. However, as PF facilities are largely extended to civil servants who enjoy relative job security, some may have opted for repayment relief as a precautionary measure. We expect non-discretionary salary deductions, through which PF is repaid, to limit asset quality deterioration as assistance measures are unwound. Bank Rakyat’s strong GIF coverage of above 150% provides further comfort.

In view of its dominance in the lucrative PF segment, Bank Rakyat generates strong net profits, averaging around RM1.6 bil in the past three years. The Bank’s net financing margin grew to 3.2% in FY Dec 2020 and 3.3% in 1H FY Dec 2021 (FY Dec 2019: 3.1%) owing to active deposit repricing following successive rate cuts last year, a fairly large share of fixed-rate financing and a higher financing to deposit ratio. A spike in impairment charges and lower non-financing income nonetheless caused pre-tax profit to slip 21.5% y-o-y to RM1.4 bil, translating into a return on risk-weighted assets of 1.7% (fiscal 2019: 2.3%). We expect the Bank’s full-year performance to be pressured by still-high impairment charges in 2H fiscal 2021.

Table 1: Bank Rakyat’s issue ratings



Imtiaz Sukuk II Berhad

RM10 billion Sukuk Wakalah Programme (2020/2050)


RM9 billion Islamic Medium Term Notes Programme (2013/2023)


Mumtaz Rakyat Sukuk Berhad

RM5 billion Subordinated Sukuk Murabahah Programme (2016/2036)


(1) The ratings of Imtiaz Sukuk II Berhad and Mumtaz Rakyat Sukuk Berhad – both funding conduits of Bank Rakyat – are linked to the credit profile of the Bank as their Islamic structures provide recourse to Bank Rakyat by virtue of its obligations under purchase undertakings. 
(2) The one-notch difference between Bank Rakyat’s long-term FIR and the rating of Mumtaz Rakyat's Subordinated Sukuk Murabahah reflects the subordination of the instrument to the Bank's senior obligations.
(3) RAM has withdrawn the rating of the RM9 billion Islamic Commercial Paper Programme under Imtiaz Sukuk II Berhad. The programme was last rated P1(s).


Analytical contacts
Amy Lo 
(603) 3385 2509

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.

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Ratings on Bank Kerjasama Rakyat Malaysia Berhad