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RAM Ratings affirms Bank Islam
Published on 10 Jan 2024.
RAM Ratings has affirmed Bank Islam Malaysia Berhad’s (the Bank) AA3/Stable/P1 financial institution ratings and the ratings of its sukuk programmes. The affirmations reflect the Bank’s solid asset quality and sound loss absorption buffer against potential credit losses.
Bank Islam has a commendable asset quality track record, with a gross impaired financing (GIF) ratio that is among the lowest in the industry. The metric improved to 1.0% as at end-September 2023 (end-December 2022: 1.3%). Some deterioration in certain segments of the Bank’s retail portfolio was offset by a large impaired corporate account write-off. Despite expectations of asset quality weakening from the impact of lingering inflationary pressures and a high interest rate environment, the risk of material credit deterioration is moderated by the Bank’s large proportion of retail financing with salary transfer and deduction features (46% of total financing as at end-June 2023). Its GIF coverage of 152% and common equity tier-1 capital ratio of 13.8% further provide a strong defence against impairment charges.
Bank Islam’s profitability has traditionally been weighed down by a relatively high cost-to-income ratio and small proportion of non-financing income, notwithstanding its above-industry margins. Its net financing margin narrowed to 2.25% in 9M FY Dec 2023 (FY Dec 2022: 2.37%) amid intense deposit competition and continuous upward repricing of deposits. This, coupled with slower financing growth of 2.7% and a heftier credit cost ratio of 33 bps, pulled the Bank’s pre-tax profit down marginally to RM543 mil despite stronger investment income during the period.
Bank Islam is majority owned (effective stake of 48.9%) by Lembaga Tabung Haji (LTH). LTH has historically demonstrated support to the Bank in the form of capital injections, dividend reinvestments, subscription of capital securities and sizeable deposit placements.
Bank Islam sukuk ratings
1. The three-notch rating differential between Bank Islam’s AA3 long-term financial institution rating and the A3 rating of its AT-1 capital
sukuk reflects the subordinated nature and fully discretionary profit payments of the sukuk, as well as our assessment that the Bank possesses
a high capital buffer level.
2. The one-notch difference between Bank Islam’s long-term financial institution rating and the rating of its subordinated sukuk reflects
the subordination of the instruments to the Bank's senior obligations.
Analytical contacts
Johan Faizul
(603) 3385 2518
johan@ram.com.my
Wong Yin Ching, CFA
(603) 3385 2555
yinching@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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 2024 by RAM Rating Services Berhad
