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

Published on 06 September 2013

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 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 ranks among the smaller banks in the domestic market, with a 1%-share of both the banking system’s outstanding financing and deposits. The Bank’s personal financing portfolio – its chief growth driver and the largest financing segment – is envisaged to expand at a significantly slower pace this year subsequent to the Bank’s adoption of stricter underwriting criteria advocated by Bank Negara Malaysia. Nevertheless, the Bank expects to achieve higher overall financing growth of 19% in FY Mar 2014 by expanding in other segments (growth in FY Mar 2013: 12%). In FY Mar 2013, Bank Muamalat’s pre-tax profit climbed to RM236.0 million (FY Mar 2012: RM103.0 million). This translated into a return on assets of 1.1%, albeit comparing less favourably with its RAM-rated peers, given its larger proportion of low-risk assets (that are typically lower yielding), higher operating costs and relatively lower proportion of non-financing income.

The Bank’s overall asset quality continued to improve steadily in FY Mar 2013, although large-financing concentration stayed high within its portfolio. Meanwhile, troubled credits in Bank Muamalat’s private debt securities portfolio have also reduced over time; we opine that the Bank’s robust capitalisation is sufficient to absorb the residual risk. Elsewhere, the Bank’s funding base comprises mainly corporate deposits and it is exposed to a relatively high level of depositor-concentration risk although we note that the Bank has long-standing relationships with these large depositors.

Media contact

Peter Kong

(603) 7628 1029

peterkong@ram.com.my