RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings of RHB Islamic Bank Berhad (the Bank), and the AA3/Stable rating of the Bank's RM1.0 billion Subordinated Sukuk Murabahah Programme (2014/2034). The ratings are

Published on 23 November 2016

RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings of RHB Islamic Bank Berhad (the Bank), and the AA3/Stable rating of the Bank's RM1.0 billion Subordinated Sukuk Murabahah Programme (2014/2034). The ratings are premised on our expectation that the Bank will continue to benefit from the strong likelihood of parental support, given its strategic importance as the Islamic banking arm of RHB Bank Berhad (the Group, rated AA2/Stable/P1). Operating under a universal-banking model, the Bank's operations are highly integrated with those of its parent.

RHB Islamic is the fifth-largest Islamic bank in Malaysia, with RM47 billion of assets as at end-June 2016. The Bank's financing base augmented an annualised 18% in 1H FY Dec 2016, mainly driven by its residential property and working-capital financing portfolios. RHB Islamic’s adjusted gross impaired-financing (GIF) ratio had eased to 1.3% as at end-June 2016 (end-June 2015: 1.9%), due to its enlarged financing base. At the same time, RHB Islamic's adjusted credit-cost ratio stayed steady at an annualised 0.2% in 1H FY Dec 2016 (fiscal 2015: 0.2%). Given the Bank's rapid expansion in recent years, its asset quality could face some deterioration as its financing portfolio seasons, and as households manoeuvre through the tougher operating environment. On balance, the Bank’s strong capitalisation and higher adjusted GIF coverage ratio of 111% as at end-June 2016 (adjusted to include RM172 million of regulatory reserves) provide a comfortable buffer.

RHB Islamic’s liquidity coverage ratio (LCR) stood at 93% as at end-June 2016. This, along with the expected liquidity support from RHB Bank, partially mitigates the Bank’s high level of depositor-concentration risk. While the LCR is above the regulatory minimum of 70%, it is still below the industry average of 125% as at the same date. Meanwhile, RHB Islamic’s net financing margin remained narrower than its peers’ at 1.3%, largely attributable to the Bank’s smaller proportion of low-cost current- and savings-account deposits and large government-related clients, which yield finer margins.

Analytical contact                                        Media contact
Chan Yin Huei                                                Padthma Subbiah
(603) 7628 1180                                            (603) 7628 1162
yinhuei@ram.com.my                                    padthma@ram.com.my