RAM Ratings has assigned an A3/Stable rating to Bank Muamalat Malaysia Berhad’s (the Bank) proposed Up to RM1 billion Subordinated Sukuk Murabahah Programme.

Published on 20 May 2016

RAM Ratings has assigned an A3/Stable rating to Bank Muamalat Malaysia Berhad’s (the Bank) proposed Up to RM1 billion Subordinated Sukuk Murabahah Programme. We have also reaffirmed the Bank’s A2/Stable/P1 financial institution ratings (FIR) as well as the A3/Stable rating of its RM400 million Islamic Subordinated Sukuk Programme (2011/2026). The 1-notch difference between the Bank’s long-term FIR and the rating of its subordinated sukuk reflects the subordination of the debt facilities to the Bank’s unsecured obligations.

The proposed sukuk is Basel III-compliant and will qualify as tier-2 capital. It has a loss-absorption feature linked to the occurrence of a non-viability event for Bank Muamalat, which may cause the writing off of the entire outstanding principal and any other amount owed. The proceeds will be used to finance the Bank’s financing activities and as working capital and/or to replace all or part of its existing subordinated sukuk programme.

Bank Muamalat stands among the smaller banks in Malaysia, accounting for only 1% of the banking system’s outstanding financing and deposits. Personal financing, which constituted 26% of the Bank’s financing portfolio, had resumed its place as its primary growth driver in 9M FY Mar 2016. The Bank aims to continue concentrating on personal and corporate financing this year while de-emphasising its home-financing portfolio, given the competitive mortgage segment.

The Bank remains one of the most highly capitalised commercial banks in the country, as reflected by its respective common-equity tier-1 and total capital ratios of 12.4% and 14.9% as at end-December 2015. However, its asset-quality indicators continue to be weaker than its peers’, with a gross impaired-financing (GIF) ratio of 2.3% (industry: 1.6%), an annualised credit-cost ratio of 0.4% and a GIF coverage ratio of 81%.

On the funding front, Bank Muamalat continued to register better-than-industry financing-to-deposits ratio of 76% as at end-December 2015. The ratio, however, had increased from 69% as at end-March 2015 following a contraction in deposits. The Bank also faces a high level of depositor-concentration risk. Its liquidity coverage ratio of 85% as at end-December 2015, while higher than the minimum 70% requirement, was below the industry’s 130%.

Meanwhile, the Bank had made significant strides in cost savings, which had contributed to higher y-o-y pre-tax profits in 9M FY Mar 2016. Profitability, however, remains weak compared to peers’, weighed down by still-elevated operating expenses and low non-financing income.

Media contact

Yong Jia Zheng

(603) 7628 1055

jiazheng@ram.com.my