MARC AFFIRMS RATINGS OF AAA/MARC-1 ON MAYBANK ISLAMIC AND AA+IS ON ITS ISLAMIC SUBORDINATED SUKUK

Jun 22, 2012 -

MARC has affirmed its AAA/MARC-1 financial institution ratings on Maybank Islamic Berhad (Maybank Islamic). In addition, MARC has also affirmed its AA+IS rating on Maybank Islamic’s Islamic Subordinated Sukuk issuance of RM1.0 billion in nominal value. The outlook of the ratings is stable. The subordinated sukuk, which qualifies as Tier-2 capital for Maybank Islamic, is rated one notch lower than Maybank Islamic’s standalone rating, reflecting the subordinated position of the sukuk relative to Maybank Islamic’s depositors and other senior creditors.

The affirmed financial institution ratings of Maybank Islamic mirrors that of its parent bank Malayan Banking Berhad (Maybank; AAA/MARC-1/stable) as MARC considers the Islamic bank to be a core entity within the Maybank Group. As Maybank’s Islamic banking arm, the bank forms a vital part of the group’s banking franchise. The wholly-owned Islamic bank’s shared branding and close alignment of the risk appetite and risk governance structures with its parent as well as its meaningful contribution are the other key factors supporting the equalisation of Maybank Islamic’s long-term credit rating with its parent. Maybank Islamic contributed approximately 15.0% of Maybank’s overall net profit and about 28.5% of total domestic financing for the year ended December 2011. In view of the above, MARC has factored into the ratings full and timely financial support from the parent/group when required. Maybank Islamic’s standalone credit strength, meanwhile, is underpinned by its leading position as the largest Islamic bank in Malaysia, the sustainability of its Islamic banking franchise and its moderate earnings stability and favourable financial flexibility. These strengths are somewhat tempered by the rapid growth in its financing book, fairly large impaired credit write-offs in recent periods and continuing margin pressure in the context of a highly competitive Islamic banking sector.

As a core entity of Malaysia’s largest financial services group, Maybank Islamic derives a strong competitive advantage from the group’s well-recognised Maybank’s brand name, strong domestic presence and consolidated financial strength. Maybank Islamic’s gross financing portfolio continued to register high year-on-year growth of 35.3% in FY2011 (July 2010 to June 2011) (FY2010: 31.3%), well above the industry average of 17.3%, giving it a market share of 26% of financing extended by the Malaysian Islamic banking industry.

Maybank Islamic’s customer deposit base has grown at a faster pace than its financing book, consequently improving its gross financing-to-deposits ratio to 85.7% as at end-March 2012, down from 96.8% as at end-June 2011. As a result of the improvement in the ratio, Maybank Islamic’s dependence on deposits and placements from the holding company reduced to RM4.3 billion as at end-March 2012 (FY2011: RM5.3 billion).

Maybank Islamic’s gross impaired financing (IF) ratio improved to 1.2% as at end-March 2012 (FY2011: 2.0%; FY2010: 2.7%). The impact of the bank’s adoption of Financial Reporting Standard 139 on its IF ratio was muted due to a combination of high financing growth, reclassifications as non-impaired, write-offs and recoveries. However, MARC notes that write-offs have been on the rise, increasing to RM326.9 million for the 12 months to June 30, 2011 from RM220.3 million in the preceding year. For the six months to December 2011, write-offs amounted to RM101.6 million. Further seasoning of Maybank Islamic’s financing book and challenges posed by economic deceleration could potentially result in higher levels of delinquencies and impairments.

Maybank Islamic’s financial performance remains sound, with net profits growing by a compounded annual growth of 32.3% from FY2009 to FY2011. The positive earnings momentum continued into financial period 2011 (FP2011) (July 2011 to December 2011) on the back of higher fund-based income, driven by strong growth in the financing portfolio. Overall, the bank has managed to maintain a relatively stable return on assets (ROA) of 1.11% for FP2011 (FY2011: 1.14%; FY2010: 1.04%).

As at end-March 2012, both core capital and risk-weighted capital ratios remained satisfactory at 9.21% (FY2011: 10.31%; FY2010: 9.14%) and 11.64% (FY2011: 13.02%; FY2010: 10.66%) respectively, well above the regulatory requirements, albeit below the industry average of 10.74% and 13.40%. MARC notes that the bank’s capitalisation remains sound and continues to be supported by adequate earnings generation. Furthermore, MARC believes that the bank will very likely receive financial support from its parent bank if and when required.

The stable outlook on the rating reflects the outlook on the parent, Maybank’s rating and MARC’s expectation that Maybank Islamic would remain a core entity in the Maybank Group. Maybank Group’s track record of consistent profitability and considerable financial strength should promote rating stability.

Contacts:

Lim Mei Ching, +603-2082 2267/ meiching@marc.com.my;

Sharidan bin Salleh, +603-2082 2254/ sharidan@marc.com.my.