RAM Ratings assigns P1 rating to AEON Credit’s proposed sukuk, reaffirms ratings of existing sukuk

Published on 08 Aug 2022.

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RAM Ratings has assigned a short-term rating of P1 to AEON Credit Service (M) Berhad’s (AEON Credit or the Group) proposed RM1.0 billion Islamic Commercial Papers Programme. Concurrently, we have reaffirmed the respective AA3/Stable and A1/Stable ratings of the Group’s Senior and Subordinated Sukuk Wakalah as well as the P1 rating of its existing RM1.0 bil Islamic Commercial Papers Programme. 

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

The ratings also consider the Group’s resilient credit metrics over the last two years despite the pandemic pressures, our expectations that it will be able to maintain its performance going forward and its well-established presence in the consumer financing segment. Notwithstanding a sizeable exposure to low-income earners – 60% of AEON Credit’s outstanding receivables were due from individuals earning less than RM3,000 per month as at end-February 2022 – its asset quality indicators have held up well, helped by selective growth over the years, stringent credit policies and rigorous collection efforts. 

The stock of impaired receivables remained broadly steady up to 4Q FY Feb 2022 when it jumped 56% q-o-q. The sudden spike was primarily due to a large number of Covid-19 infections among staff which affected recovery efforts. Unexpected floods in December 2021 that hit the central and eastern regions of the country also contributed to the uptick. As at end-May 2022, the Group’s gross impaired financing (GIF) eased to 2.5% (end-February 2022: 2.7%). A better delinquency trend and strong recoveries led to a net writeback of RM17.8 mil of provisions in 1Q FY Feb 2023. GIF coverage stayed sturdy at 281.5% as at end-May 2022. Its strong profitability and high loss absorption buffer are expected to be able to cushion a reasonable level of asset quality deterioration.

Boosted by a substantial reduction in credit costs, AEON Credit’s pre-tax profit climbed 62.1% to RM526.8 million in FY Feb 2022. The writeback of provisions in 1Q FY Feb 2023 kept pre-tax profit relatively unchanged at RM215.5 mil. Contributions from a newly acquired insurance subsidiary and the Group’s digital bank are not expected to be meaningful in the near to medium term. AEON Credit, together with its Japanese parent company, and US-based technology partner, MoneyLion Inc., is one of two consortia to win the Islamic digital bank licence.

AEON Credit’s annualised net interest margin (NIM) held steady at 10.8% in 1Q FY Feb 2023 (FY Feb 2021: 11.1%), remaining among the highest in our rating portfolio. The Group is exploring ways to expand its NIMs, including the provision of shorter tenure, smaller ticket-size personal financing. The rising interest rates will have little immediate impact, given the fixed rates of its receivables base. Intensified competition, both from conventional and digital challenger banks as well as other non-bank credit providers, poses a long-term challenge to profitability.

The Group’s dependence on wholesale funding is a notable disadvantage compared to deposit-taking institutions. However, its debt maturities are well spread out while cash balances and unutilised credit facilities are sufficient, covering 8.0 times the Group’s short-term borrowings as at end-February 2022. Gearing (adjusted for fair value of hedging reserves) improved further to 3.5 times as at end-May 2022 and is not expected to change materially in the near term. 


Analytical contacts
Chan Yin Huei
(603) 3385 2498

Jeremy Noel Paul 
(603) 3385 2556


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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Ratings on AEON Credit Service (M) Berhad