RAM Ratings affirms AA3 and A1 ratings of AEON Credit’s Senior and Subordinated Sukuk Wakalah Programme

Published on 10 Jul 2023.

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RAM Ratings has affirmed the respective AA3/Stable and A1/Stable ratings of AEON Credit Service (M) Berhad’s (AEON Credit or the Group) Senior and Subordinated Sukuk Wakalah Programme as well as the P1 rating of its RM1.0 bil Islamic Commercial Papers Programme. 

The affirmation is premised on the sustained resilience of the Group’s credit metrics, especially asset quality and profitability indicators, through economic cycles. We have also factored in 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 prominent Japan-based retail and financial services group. We are confident that the Group will remain a notable player in the consumer lending segment, especially in motorcycle financing. Its investment in a digital bank together with AFS should complement its existing business, although not expected to contribute significantly in the near term.

AEON Credit has a consistently strong track record of managing its asset quality despite a sizeable exposure to non-prime borrowers. AEON Credit concluded FY Feb 2023 with a gross impaired financing (GIF) ratio of 2.9% (FY Feb 2022: 2.7%). The higher ratio was mainly driven by the personal financing and motorcycle financing segments, where deterioration was predominantly associated with lower-income and younger borrowers. The Group’s GIF ratio may weaken further as inflationary pressure weighs on borrowers’ debt servicing ability but should remain manageable. GIF coverage ratio was still sound at 252% as at end-February 2023.

Benefiting from a 9.9% growth of its receivables base and wider net interest margins, AEON Credit’s pre-tax profit grew to RM547.0mil in FY Feb 2023 (FY Feb 2022: RM526.8 mil). A lucrative net interest margin (three-year average: 11.1%) afforded the Group ample headroom to absorb a heftier credit cost of 2.6% (FY Feb 2022: 1.5%). The Consumer Credit Act, expected to be tabled by end-2023, will require credit providers such as lenders like AEON Credit to adhere to prescribed governance, conduct and lending practices when finalised. As the Group largely observes industry best practices in these areas, the operational and financial impact is not seen to be significant.

AEON Credit’s dependence on wholesale funding is a notable disadvantage when compared to deposit-taking institutions. However, the Group’s debt maturities are well spread out while cash balances and unutilised credit facilities covered 2.5 times the Group’s short-term borrowings as at end-February 2023. Gearing (adjusted for fair value of hedging reserves) improved further to 3.5 times (end-February 2022: 3.7 times) and is not anticipated to change materially in the near term. 


Analytical contacts
Ho Chian Leng, CFA
(603) 3385 2527

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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