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RAM Ratings affirms AFFIN Group’s AA3 financial institution ratings
Published on 21 May 2024.
RAM Ratings has affirmed the AA3/Stable/P1 financial institution ratings of AFFIN Bank Berhad (AFFIN Bank or the Group) and its banking subsidiaries, AFFIN Islamic Bank Berhad (AFFIN Islamic) and Affin Hwang Investment Bank Berhad (Affin Hwang). Concurrently, the existing issue ratings of these entities have been affirmed. We have also assigned respective P1 ratings to AFFIN Bank’s and AFFIN Islamic’s proposed Commercial Papers Programmes and AA3/Stable/P1 ratings to Affin Hwang’s proposed Commercial Papers/Medium Term Notes Programme.
AFFIN Bank’s ratings currently benefit from our expectations of extraordinary parental support. Its existing major shareholder, Lembaga Tabung Angkatan Tentera (LTAT or the Fund) – the pension fund for members of the Malaysian Armed Forces – owns a combined direct and indirect stake of 48.8% in the Group. The Sarawak state government has stated an intention to increase its shareholding in AFFIN Bank from the present 4.8%. Regulatory approval for the transaction is pending.
The affirmation of the ratings considers the potential change in AFFIN Bank’s shareholding structure and the stated intentions expressed by the Sarawak government, which lead us to believe that AFFIN Bank will likely receive extraordinary support from its new major shareholder – if the transaction is approved and completed. With a bigger stake in AFFIN Bank, the Sarawak government aims to improve funding access for creditworthy small and medium enterprises as well as corporates across the state as part of a broader strategy to bolster economic development. For AFFIN Bank, this will mean greater opportunities to participate in the growth ambitions of the Sarawak state. If successful, the additional stake could enhance the Group’s funding base through increased deposit inflows.
In the immediate term, AFFIN Bank’s standalone credit profile is envisaged to stay in line with its current ratings despite recent profitability-related challenges and potential asset quality risks. Its gross impaired loan ratio eased to 1.9% as at end-December 2023 (end-December 2022: 2.0%), largely due to fast loan expansion. Asset quality may see some slippage in the coming quarters, especially attributable to SMEs and some corporates in Stage 2, but we do not expect widespread vulnerabilities. Still-healthy loss absorption buffers in the form of provision reserves and capitalisation will help the Group weather potential credit slippages.
AFFIN Bank lags peers in some of its core profitability and funding metrics. A spike in funding cost in FY Dec 2023 compressed the Group’s net interest margin (NIM) to 1.4% (FY Dec 2022: 2.1%). Lower gross income coupled with a heftier operating cost drove the cost-to-income ratio to 71.6% in FY Dec 2023 (FY Dec 2022: 64.1%). With the Group projecting a NIM of 1.6% for full-year 2024, earnings are anticipated to remain constrained in the near term.
The Group’s 26.7% share of current and savings account (CASA) deposits as at end-December 2023 stayed below the industry’s 33.3%. The management expects continued enhancement of its digital capabilities and further branch expansion to drive CASA deposits going forward, although meaningful improvement in its funding profile may require time.
Table 1: Issue ratings of AFFIN Bank and banking subsidiaries
Analytical contacts
Amy Lo
(603) 3385 2509
amy@ram.com.my
Liew Kar Ling
(603) 3385 2586
karling@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
Rating Rationale: AFFIN Bank Berhad
Rating Rationale: Affin Hwang Investment Bank Berhad
