RAM Ratings reaffirms Bank Muamalat’s A2/P1 financial institution ratings and A3 subordinated sukuk rating

Published on 05 June 2012

RAM Ratings has reaffirmed Bank Muamalat Malaysia Berhad’s (“Bank Muamalat” or “the Bank”) respective long- and short-term financial institution ratings at A2 and P1. Concurrently, the rating of the Bank’s RM400 million Islamic Subordinated Sukuk Programme (2011/2026) (“Subordinated Sukuk”) has also been reaffirmed at A3. Both the long-term ratings have a stable outlook. The 1-notch difference between Bank Muamalat’s A2 long-term financial institution rating and the A3 rating of its Subordinated Sukuk reflects the subordination of the debt facility to the Bank’s senior unsecured obligations.

Bank Muamalat, a full-fledged Islamic financial institution, is currently owned by DRB-HICOM Berhad (70%) and Khazanah Nasional Berhad (30%). Notably, its asset-quality indicators have been improving since the implementation of a more rigorous risk-management framework by the then-new management team in 2009. Nevertheless, delinquencies from credits originated prior to that are still surfacing, although less frequently. This was the case as at end-March 2012, when the value of the Bank’s gross impaired financing (“GIF”) increased RM68 million to RM446.3 million from RM378.3 million as at end-March 2011, primarily due to 2 lumpy defaulted construction accounts. However, a larger financing base following its 26% financing growth in FYE 31 March 2012 (“FY Mar 2012”) kept its GIF ratio at 4.7% at the end of the period (banking system: 2.5%).

In FY Mar 2012, Bank Muamalat recorded a 39.2% lower pre-tax profit of RM124.1 million, mainly due to heftier overheads and a compressed net financing margin. While exposures to certain private debt securities may also require additional impairment charges in the future, we acknowledge Bank Muamalat’s robust capitalisation, which provides an ample buffer to absorb these potential losses; its overall risk-weighted capital-adequacy ratio stood at 19.7% as at end-March 2012. We note that the Bank’s high level of depositor-concentration risk is partly mitigated by its liquid balance sheet, as underlined by its high liquid-asset ratio of 45.8%.

Media contact
Cheong Kah Weng
(603) 7628 1113
kahweng@ram.com.my