RAM Ratings reaffirms MBSB’s and MBSB Bank’s A2 ratings

Published on 13 Jul 2022.

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RAM Ratings has reaffirmed Malaysia Building Society Berhad’s (MBSB or the Group) A2/Stable/P1 corporate credit ratings (CCRs). Concurrently, MBSB Bank Berhad’s (the Bank) A2/Stable/P1 financial institution ratings (FIRs) and the ratings of its sukuk facilities have also been reaffirmed (Table 1). Despite its structural subordination as a non-operating holding company, MBSB’s CCRs are equated to the FIRs of the Bank to reflect the former’s debt-free status at the holding company level. 

The reaffirmations are underpinned by our expectation that the strong capital positions of the two entities will provide sufficient buffers in times of credit stress. MBSB’s and MBSB Bank’s common equity tier-1 capital ratios, standing at a respective 20.8% and 16.5% as at end-March 2022, were further boosted by the introduction of investment accounts (IAs). The credit risk of assets funded by IAs is exempted from the computation of capital adequacy, lifting these ratios by 50-70 bps. The ratings also incorporate our assessment of a moderate likelihood of support from the Group’s largest shareholder, the Employees Provident Fund, if required.  

Relief financing declined considerably to 17% of MBSB Bank’s portfolio as at end-March 2022 (end-December 2021: 53%), although still relatively high. These are mostly payroll-deductible personal financing facilities extended to civil servants. MBSB’s and MBSB Bank’s gross impaired financing ratios deteriorated to 5.9% and 4.0% as at end-March 2022 (end-December 2020: 5.3% and 2.9%) on the back of lumpy corporate impairments and an uptick in retail financing facilities as most borrowers weaned themselves off repayment assistance. While more defaults may arise, we expect the entities’ overall asset quality to be upheld by the non-discretionary salary deduction feature of slightly over half of the Bank’s financing portfolio.  

MBSB’s net financing margin is among the broadest in the industry (three-year average: 3.1%), backed by a large proportion of lucrative personal financing facilities. The Group’s earnings profile is also boosted by a low cost to income ratio, which has averaged 29% in the last three years. Higher operating expenses, margin compression and some trading losses affected the Group’s earnings performance in 1Q 2022, dragging its pre-tax profit down 29% y-o-y. This translated into an annualised return on risk-weighted assets of 0.8% (2021: 1.8%; 2020: 1.0%). Additional provisioning expenses may be required but MBSB’s profitability will still be largely supported by wide margins and a low cost to income ratio relative to peers.

The proportion of MBSB’s current and savings account deposits remained negligible at 5% of total deposits as at end-March 2022 (industry: 33%; end-December 2020: 2%). Individual deposits formed only 13% of its deposit base, reflecting the Group’s weak retail deposit franchise against industry peers (37%). Capital-efficient IAs amounted to RM1.7 bil or 5% of the Group’s total customer funding (i.e., deposits and IAs) as at the same date. 

MBSB is currently exploring the possibility of acquiring Malaysian Industrial Development Finance Berhad (MIDF, rated A1/Stable/P1) from Permodalan Nasional Berhad. We do not expect the acquisition, if successful, to materially weaken the Group’s capitalisation given MIDF’s relatively small size.  

Table 1: MBSB Bank’s issue ratings



Rating Outlook

RM10.0 bil Wakalah Bi Al-Istithmar Sukuk Programme (2019/2031)

  1. Senior Sukuk Wakalah*
  2. Tier-2 Sukuk Wakalah*
  3. Additional Tier-1 (AT-1) Capital Sukuk Wakalah*


* combined limit of RM10.0 bil




Analytical contacts
Tan Shu Xuan
(603) 3385 2497

Sophia Lee
(603) 3385 2619

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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