RAM Ratings reaffirms Sabah Credit Corporation's AA1/P1 issue ratings

Published on 12 July 2011
RAM Ratings has reaffirmed the respective long- and short-term ratings of Sabah Credit Corporation’s (SCC or the Corporation) RM500 million Commercial Papers/Medium-Term Notes (CP/MTN) Programme (2007/2014), at AA1 and P1; the long-term rating has a stable outlook. The ratings reflect the strong commitment and support from the State Government of Sabah (State Government, rated AAA/P1 by RAM Ratings).


Wholly owned by the State Government and operating under the purview of the Sabah State Ministry of Finance, SCC provides financing to employees of both the State and Federal Governments via direct salary deductions. Given its close relationship with the State Government, the Corporation has been allowed the privilege of making direct salary deductions for state employees’ repayments on personal loans via the State Treasury. Support from the State Government is further demonstrated by its board representation as well as the subordination of SCC’s existing and future loans from the State Government (both principal and interest) to the Corporation’s debt securities. SCC has also received approval from the State Government to convert the latter’s loan of up to RM100 million into share capital at the option of the Corporation.

In FY Dec 2010, SCC recorded a 3.2% year-on-year (y-o-y) growth in its personal financing portfolio - its largest lending sector - following a contraction the year before. The financing growth was largely supported by the introduction of its Islamic personal-financing product and the reduction of effective profit rates on personal financing facilities to draw customers. As at end-December 2010, SCC’s gross non-performing-loan ratio had edged up from 8.6% to 9.0% y-o-y, after having abolished its policy of deducting 2 months’ salary in advance for new personal financing since 2009 due to keen competition. Overall, the credit quality of its personal-financing portfolio has remained manageable due to the deployment of a direct-salary-deduction mechanism. Meanwhile, SCC remains exposed to concentration risk, with almost 78% of its loans extended to this segment as at end-December 2010.

The Corporation recorded a respectable profit performance in fiscal 2010, with a pre-tax profit of RM42.3 million that was largely due to lower loan-loss provisions. Given the lower profit rates on its personal financing (contracted at fixed rates) and its higher cost of funds, SCC’s net interest margin narrowed from 5.4% to 5.0% y-o-y. In line with the current uptrend in interest rates, we anticipate its net interest margin to narrow further as almost all of its lending assets comprised fixed-rate facilities as at end-December 2010.

Media contact
Shireen Ng
(603) 7628 1021
shireen@ram.com.my