Published on 22 Sep 2023.
RAM Ratings has downgraded the ratings of Malaysian Industrial Development Finance Berhad (MIDF) and MIDF Amanah Investment Bank Berhad (MAIB) from A1/P1 to A2/P1 to align the ratings with Malaysia Building Society Berhad’s (MBSB) ratings given MBSB’s soon to be completed acquisition of a 100% stake in MIDF. The rating equalisation is in accordance with RAM’s Group Rating Methodology for Banks, which constrains the ratings of entities within a banking group to the credit strength of the larger group. Concurrently, the Rating Watch on which MIDF and MAIB were placed in April 2023 with a negative outlook has been lifted. The outlook on the ratings is now stable.
Assuming the role of the investment banking arm of the merged entity, we believe MIDF is highly likely to receive support from MBSB should the need arise. In view of minimal business overlaps, MIDF is expected to bring synergies to the larger MBSB group by providing investment banking and asset management products and services. Implementation plans however are still being discussed and execution risks remain. MIDF’s development finance activities will also afford a steady stream of income without bearing any credit risk as loans for this purpose are funded by grants and accounted for off-balance sheet. On a pro forma basis, MIDF’s overall contributions to the enlarged group are relatively small, representing about 13% of pre-tax profit and 11% of assets.
MIDF’s capital position remains robust, its common equity tier-1 capital ratio standing at 27% as at end-June 2023. This provides an ample buffer to weather potential credit losses and earnings volatilities. MIDF’s gross impaired loan (GIL) ratio was elevated at 18% and GIL coverage weak at 54%, although we highlight that loans account for only a quarter of assets. Many of these are legacy impaired loans and are well-collateralised. In the absence of a sizeable impairment seen the previous year, MIDF’s pre-tax profit for FY Dec 2022 jumped 90% to RM102 mil from RM54 mil.
Lee Yee Von
(603) 3385 2503
Wong Yin Ching, CFA
(603) 3385 2555
(603) 3385 2500
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Ratings on Malaysian Industrial Development Finance Berhad