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RAM Ratings affirms AA3 and A1 ratings of AEON Credit
Published on 04 Jul 2025.
RAM Ratings has affirmed respective AA3/Stable and A1/Stable ratings to Senior and Subordinated Sukuk under AEON Credit Service (M) Berhad’s (AEON Credit or the Group) RM5 bil Sukuk Wakalah Programme as well as the P1 rating of its RM1 bil Islamic Commercial Papers Programme.
The affirmations reflect AEON Credit’s presence in the domestic consumer lending space, sustained resilience in asset quality and profitability, despite its sizeable exposure to non-prime borrowers and moderate gearing level. The ratings also factor in our expectations of a ‘high likelihood’ of extraordinary support from AEON Co., Ltd, the Group’s ultimate parent – a prominent Japan-based retail and financial services group. AEON Credit, together with its sister retail company - AEON CO. (M) BHD., represent the AEON group’s strategic presence in Malaysia.
As at end-February 2025, the Group’s gross impaired financing (GIF) ratio held steady at 2.6% as an increase in GIF was offset by a larger receivables base. The GIF uptick was primarily due to new-to-credit, lower-income and younger borrowers. The management expects the asset quality deterioration within these segments to be contained, as credit tightening measures implemented since last year are anticipated to progressively yield results. The Group targets to reduce the GIF ratio to below 2.5% by end-February 2026. AEON Credit’s GIF coverage stayed robust at 208.6% as at end-February 2025 (end-February 2024: 221.3%), affording a strong loss absorption buffer.
Despite a 15.4% growth in receivables and a wider net interest margin, AEON Credit's pre-tax profit declined to RM513.5 mil in FY Feb 2025 (FY Feb 2024: RM565.2 mil), mainly due to higher net impairment charges (+RM123.7 mil) and other operating expenses (+RM97.6 mil) coupled with the Group’s share of losses in the newly launched digital bank – AEON Bank (M) Berhad (AEON Bank) (+RM51.8 mil). Nevertheless, lucrative net interest margins (averaging 11.9% over the past three years) provide ample capacity to absorb the Group’s relatively high credit costs (three-year average: 3.3%). While AEON Bank is projected to continue incurring losses, with breakeven targeted within five years of commencing operations, we expect the overall financial impact on the Group to remain manageable.
AEON Credit’s dependence on wholesale funding is a notable disadvantage when compared to deposit-taking institutions. However, debt maturities are well spread out while cash balances and unutilised credit facilities were sufficient to cover short-term borrowings as at end-February 2025. Gearing (adjusted for fair value of hedging reserves) stood at 3.8 times from 3.6 times a year ago.
Analytical contacts
Chew Wei Li
(603) 2708 8301
weili@ram.com.my
Jeremy Noel Paul
(603) 2708 8230
jeremynp@ram.com.my
Media contact
Sakinah Arifin
(603) 2708 8212
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
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