RAM Ratings assigns final AA2(s) and P1(s) ratings to proposed sukuk issued by Bank Rakyat’s funding conduit

Published on 09 December 2013

RAM Ratings has assigned respective final ratings of AA2(s) and P1(s) to the proposed Islamic Medium-Term Notes (IMTN) Programme and Islamic Commercial Paper (ICP) Programme of up to RM9 billion in nominal value (the proposed Sukuk) issued by Imtiaz Sukuk II Berhad – a trust-owned entity set up as a funding conduit of Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat or the Bank). The ICP Programme has a sub-limit of RM1 billion. The ratings of the proposed Sukuk reflect the credit strength of Bank Rakyat, given its obligations under the Purchase Undertaking. Concurrently, we have reaffirmed Bank Rakyat’s AA2/Stable/P1 financial institution ratings, along with the AA2(s)/Stable/- rating of its RM1 billion IMTN Programme issued by Imtiaz Sukuk Berhad, another funding conduit of Bank Rakyat.

Bank Rakyat is a leading cooperative and developmental financial institution (DFI), with a strong foothold in the provision of personal-financing facilities to civil servants. The Bank commands an estimated 36% of the Malaysian personal-financing market. Given its status as a cooperative bank-cum-DFI and its large base of individual shareholders, we expect Bank Rakyat to derive government support if necessary.

Bank Rakyat’s overall asset quality is deemed sound. The gross impaired-financing (GIF) ratio of the Bank’s personal-financing portfolio which stood at 1.0% as at end-June 2013, was supported by its ability to access Biro Perkhidmatan Angkasa’s direct-salary-deduction system. Salaries are deducted at source and deductions are non-discretionary from the borrower’s perspective, thereby moderating the risk of unsecured financing. Bank Rakyat’s credit-cost ratio remained relatively high, constrained by its weaker non-personal-financing portfolio and tighter provisioning policy for unsecured financing. As at end-1H FY Dec 2013, the Bank’s credit-cost ratio increased to an annualised 1.6% (end-FY Dec 2012: 0.9%). However, we understand that this is in line with the management’s plan to build up the Bank’s GIF coverage ratio. As at end-June 2013, the ratio had risen to 130.2% (end-December 2012: 106.4%). 

Following Bank Negara Malaysia’s recent measures to curb household debt (which included a 10-year cap on the tenure of personal-financing), the Bank has further tightened its underwriting criteria. This move is expected to moderate Bank Rakyat’s financing growth. In 1H FY Dec 2013, the Bank’s financing growth slowed to 6% (annualised) compared to 12% in FY Dec 2012.

Bank Rakyat’s deposit base largely originates from government/statutory bodies and corporates, which brings about a relatively high level of depositor-concentration risk. Its top 10 depositors accounted for 25.0% of its deposits as at end-June 2013. However, the risk is moderated by the Bank’s established relationships with these entities. As at end-June 2013, the Bank’s capitalisation remained sturdy, with a tier-1 capital ratio of 15.2%.

Media contact

Athirah Amer

(603) 7628 1172

athirah@ram.com.my