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RAM Ratings assigns A3 rating to Bank Islam’s proposed RM5 bil AT-1 Sukuk Programme

Published on 27 Jun 2022.

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RAM Ratings has assigned a long-term rating of A3/Stable to Bank Islam Malaysia Berhad’s (the Bank) proposed RM5 bil Additional Tier-1 Capital Sukuk Wakalah (AT-1 Sukuk), as listed in Table 1.

Since our last review in December 2021, Bank Islam’s credit metrics have stayed intact. Asset quality ratios continue to fare better than the banking system’s despite the impairment of a lumpy corporate exposure late last year. The Bank’s gross impaired financing (GIF) ratio edged up to 1.0% as at end-March 2022 (end-December 2020: 0.7%; banking system: 1.6%) while financing loss coverage was around 181%. 

Meanwhile, financing under relief reduced to 4.6% as at end-March 2022 (end-December 2021: 40%). Defaults will likely crop up as customers wean off financial reprieve measures and resume normal repayments, although GIF formation will be partly mitigated by the Bank’s sizeable portion (above 60%) of consumer financing with non-discretionary salary deduction or salary transfer arrangements. We further believe that Bank Islam’s sturdy provisioning and capital buffers (common equity tier-1 capital ratio of 14.0%) will provide sufficient headroom against potential credit weakening. The ratings also consider ready financial support from the Bank’s ultimate major shareholder, Lembaga Tabung Haji (effective stake of 48.3%), if necessary.

Bank Islam’s earnings for 2021 were affected by higher operating expenditure as well as more subdued investment and trading income. Pre-tax profit fell 3% to RM704.2 mil in fiscal 2021, resulting in a lower return on risk-weighted assets ratio of 1.6% (fiscal 2020: 1.8%). While dampened, the Bank’s profitability is still deemed sound, upheld by a wide net financing margin (NFM). Bank Islam’s NFM was broadly stable, hovering around 2.3% in fiscal 2021 and 1Q fiscal 2022 (annualised), thanks to a high share of lucrative personal financing (~30%) and proactive management of the Bank’s liability profile. We expect the NFM to benefit from the recent 25-bp overnight policy rate hike and the likelihood of another increase in 2H 2022, given that more than 90% of the Bank’s financing are floating rate facilities. Margin expansion however could be partially stifled by keener deposit competition.

Table 1: Bank Islam’s sukuk ratings

Instrument

Rating

Rating Outlook

Proposed RM5 bil Additional Tier-1 Capital Sukuk Wakalah

A3

Stable

RM1 bil Subordinated Sukuk Murabahah Programme (2015/2045)

A1

Stable

RM10 bil Sukuk Murabahah Programme (2018/-)

  • Senior Sukuk Murabahah
  • Subordinated Sukuk Murabahah

 

AA3
A1

 

Stable
Stable

 

Analytical contacts
Chow Kah Mun
(603) 3385 2501
kahmun@ram.com.my

Wong Yin Ching, CFA
(603) 3385 2555
yinching@ram.com.my

 

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
© Copyright 2022 by RAM Rating Services Berhad



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Ratings on Bank Islam Malaysia Berhad

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