RAM Ratings reaffirms Sabah Credit Corporation’s AA1/P1 issue ratings, with stable outlook

Published on 19 August 2013

RAM Ratings has reaffirmed Sabah Credit Corporation’s (“SCC” or “the Corporation”) respective long- and short-term ratings at AA1 and P1 on its Islamic Commercial Papers (2011/2018)/Islamic Medium-Term Notes (2011/2031) Programme of up to RM1 billion and its RM500 million CP/MTN Programme (2007/2017); the long-term ratings have a stable outlook.

SCC is wholly owned by the State Government of Sabah (“State Government”) and operates under the purview of the Sabah State Ministry of Finance. The ratings reflect our expectation of continued support for the Corporation from the State Government. This has been clearly demonstrated through the subordination of SCC’s loans from the State Government to its debt securities, the conversion of the Corporation’s State Government loans into share capital, the reinvestment of dividends as capital and the extension of letters of support for its debt securities.

Notably, SCC’s financing portfolio remains concentrated on the personal financing facilities for civil servants (88% of its total financing), which expanded 20.5% y-o-y to RM1.4 billion as at end-fiscal 2012. The repayment of such facilities is conducted through direct salary deductions from the employees of the State and Federal Governments, thereby reducing the Corporation’s credit risk. Going forward, SCC is expected to continue focusing on this lucrative financing segment. However, the Corporation’s business growth will be affected by tighter underwriting standards and the intense competition in this segment. Overall, the gross impaired-financing ratio for SCC’s entire financing portfolio lowered to 7.0% as at end-December 2012, mainly attributable to heftier write-offs of its legacy loans during the year.

As SCC cannot accept deposits, it has increased its reliance on funding from the debt capital market, which exposes the Corporation to lumpy repayments and roll-over risk. Nonetheless, we note that SCC is able to tap its unutilised banking lines. In tandem with its rapid financing growth, SCC’s estimated overall and tier-1 RWCARs remained healthy at 22.3% and 20.9%, respectively, as at end-December 2012.

Media contact

Ang Jae Han

(603) 7628 1020

angjaehan@ram.com.my