Published on 22 Sep 2023.
RAM Ratings has upgraded to AAA from AA1 the rating of the Tranche 3 Structured Covered Sukuk issued under MBSB Bank Berhad’s (MBSB Bank or the Bank) RM2,295 mil Structured Covered Sukuk Murabahah Programme. Concurrently, we have affirmed the ratings of the Bank’s Tranche 2 and 4 Structured Covered Sukuk. All the ratings carry a stable outlook.
OC = overcollateralisation, including cash balances in designated accounts.
* As at end-May 2023.
The Structured Covered Sukuk is a dual-recourse instrument with direct recourse to MBSB Bank as a senior unsecured obligation, and a second recourse to the Tranche Cover Assets from a guarantee by Jana Kapital Sdn Bhd (a special purpose vehicle), the guarantor. The Tranche Cover Assets are made up of personal financing (PF) facilities extended to civil servants, originated by the Bank.
The AAA ratings of Tranche 2 and 3 reflect their fully cash-collateralised position under the second recourse. Accumulated cash balances in the Tranche 2 and 3 designated accounts were more than sufficient to meet the respective outstanding principal and remaining scheduled profit payments. The issue ratings are henceforth independent of MBSB Bank’s A2/Stable/P1 financial institution ratings (FIRs).
The affirmation of the Tranche 4 Sukuk’s AA1 issue rating is premised on the Bank’s credit profile, the transaction’s “average” interruption risk, and superior credit support commensurate with the assigned rating. While the Tranche 4 Cover Assets are supportive of a higher rating, the transaction is limited by a four-notch rating uplift from MBSB Bank’s long-term FIR of A2 (click here for more information on the Bank) under RAM’s Rating Approach for Covered Bonds.
During the review period, the respective portfolios’ loss performance remained healthy. The cumulative net default rate since issuance has stayed below our base-case assumption, attributable to the non-discretionary nature of salary deductions by which the PF facilities are paid and the low attrition rate in the civil service. The average monthly prepayment rate, although trending higher, is credit positive given the longer remaining tenure of the underlying PF facilities vis-à-vis the sukuk. Any negative carry can be mitigated by the serial redemption of the sukuk.
Chu Jia Ying
(603) 3385 2519
Lim Chern Yit
(603) 3385 2528
(603) 3385 2500
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