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RAM Ratings affirms Sabah Credit Corporation’s AA1/Stable/P1 sukuk ratings
Published on 22 Jun 2023.
RAM Ratings has affirmed the AA1/Stable/P1 ratings of Sabah Credit Corporation’s (SCC or the Corporation) sukuk programmes (see table).
The affirmation reflects our expectation of ready financial support from the Sabah state government – which wholly owns the Corporation – should it be required. This is evidenced by the subordination of SCC’s state borrowings to its debt securities and the conversion of some of these borrowings into share capital.
SCC’s financing book is predominantly composed of personal financing (PF) facilities, which accounted for a significant 98% of total financing as at end-December 2022. Almost all of these facilities are extended to civil servants and repaid through non-discretionary salary deductions made by Biro Perkhidmatan Angkasa and the Sabah State Treasury. This alleviates risks arising from the borrowers’ capacity and willingness to pay. Fierce competition from commercial banks, however, kept the Corporation’s financing book stagnant.
SCC’s asset quality remains sound, its gross impaired financing (GIF) ratio improving further to 2.5% as at end-December 2022 (end-December 2021: 3.0%) with continued sizeable writeoffs. That said, its writeoffs of impaired PF are slower than peers’ due to bureaucratic policies, given that SCC is a state-owned entity. Excluding impaired PF facilities more than 12 months in arrears and those impaired on technical grounds due to the three-month moratorium in 2020, for which repayments have since resumed, SCC’s adjusted overall GIF ratio would clock in at a better 1.7% (end-December 2021: 1.7%). The Corporation’s loss absorption buffer stayed robust, with GIF coverage of 132%.
Potential refinancing risk arising from SCC’s dependence on market-based, wholesale funding is mitigated to some extent by expected funding and liquidity support from the state government when necessary. The Corporation’s pre-tax profit rose 11% y-o-y to RM102 mil in FY Dec 2022, buoyed by the absence of the one-off RM18.8 mil modification loss in the previous year. Its net financing margin may come under some pressure this year as maturing sukuk are rolled over at higher rates. Overall earnings accretion and muted financing growth resulted in an improved gearing of 2.7 times as at end-December 2022 (end-December 2021: 3.0 times).
Table: SCC’s issue ratings
Analytical contacts
Julian Chan
(603) 3385 2486
julian@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 2023 by RAM Rating Services Berhad
