Published on 31 October 2014
RAM Ratings has reaffirmed Standard Chartered
Saadiq Berhad’s (or the Bank) AAA/Stable/P1 financial institution
ratings. The ratings reflect Saadiq’s business model that is highly
integrated with that of its parent, Standard Chartered Bank Malaysia
Berhad (Standard Chartered, rated AAA/Stable/P1 by RAM Ratings), from
which the Bank derives substantial operational and funding support. As
the latter’s Islamic banking arm, Saadiq is viewed to be strategically
important to its parent. Support from Standard Chartered is expected to
be readily extended if required.
Saadiq remains as a small player in the domestic
Islamic banking system, with about 2% of this segment’s assets. Nearly
all of the Bank’s recent financing growth has been driven by residential
and non-residential mortgages, to increase its proportion of secured
financing. As at end-March 2014, these 2 types of financing comprised
half of its financing portfolio (end-December 2012: 20%), reflecting a
group-wide strategy as most of Standard Chartered’s mortgages of late
have been offered through Saadiq.
With this shift to mortgages, the Bank’s asset
quality is expected to improve as mortgage financing usually carries
lower credit risk. Nonetheless, the Bank’s adjusted credit-cost ratio
inched up from 1.9% to 2.1% y-o-y in fiscal 2013, mainly due to its
weaker personal-financing portfolio; the Bank has since been more
cautious on new personal financing. With a greater proportion of
lower-yield mortgages in its financing mix (as opposed to personal
financing), Saadiq’s net financing margin thinned to 2.6% (annualised)
in 1Q FY Dec 2014 (FY Dec 2012: 3.7%).
Meanwhile, Saadiq faces a relatively high level of
depositor-concentration risk. However, comfort can be drawn from its
liquidity profile and the financial flexibility derived from its parent,
which currently supplies all of Saadiq’s inter-bank funding needs.
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