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RAM Ratings affirms Bank Islam’s AA3/Stable/P1 ratings
Published on 27 Nov 2024.
RAM Ratings has affirmed Bank Islam Malaysia Berhad’s (the Bank) AA3/Stable/P1 financial institution ratings (FIR) and the respective ratings of its sukuk programmes (see table below). The rating affirmations reflect the Bank’s stand-alone credit strengths, underscored by solid asset quality, healthy capitalisation and satisfactory funding and liquidity profile. However, these strengths are weighed down by its smaller franchise and moderate profitability indicators vis-à-vis its peers.
Bank Islam’s asset quality – as measured by its gross impaired financing (GIF) ratio –stood amongst the lowest in the industry at 0.9% as at end-June 2024 (end-December 2022: 1.3%). The metric improved mainly after the write-off of a large impaired corporate account. The credit quality of its two largest portfolios, home and personal financing, improved with a slight decline in their GIF ratios since end-December 2022, demonstrating the Bank’s prudent credit underwriting standards. Looking ahead, the risk of material credit deterioration should be moderated by the Bank’s substantial 46% of total financing with salary transfer and deduction features as at end-June 2024. The Bank’s GIF coverage (including regulatory reserves) of 158.0% and common equity tier-1 capital ratio of 13.7% further provide a strong defence against impairment charges.
The Bank’s wider-than-industry margins have traditionally been offset by its high-cost structure. The Bank’s net financing margin (NFM) narrowed from 2.37% in FY 2022 to 2.23% in FY 2023, due to the upward repricing of its deposits and intense deposit competition, although it improved slightly to 2.27% in 1H FY Dec 2024 as competition eased. While the Bank’s margin deterioration was less pronounced than its peers, its return on risk-weighted assets (RoRWA) of 1.54% and return on assets (RoA) of 0.83% (FY Dec 2022: 1.59% and 0.88%) remained modest and slipped further to an annualised 1.45% and 0.79% in 1H FY Dec 2024 due to higher IT-related expenses and lower investment income.
Based on our support assessment, we believe Bank Islam is likely to receive a ‘moderate’ likelihood of extraordinary support assessment from its majority-owner, Lembaga Tabung Haji (LTH). With an effective stake of 48.9%, Bank Islam is considered one of LTH’s strategic investment and have demonstrated past instances of support in the form of capital injections, dividend reinvestments, subscription of capital securities and sizeable deposit placements. We have not provided any rating uplift to Bank Islam’s ratings given its strong stand-alone credit profile.
Analytical contacts
Johan Faizul
(603) 3385 2518
johan@ram.com.my
Amy Lo
(603) 3385 2509
amy@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
