RAM Ratings has reaffirmed Bank Islam Malaysia Berhad’s (the Bank) AA3/Stable/P1 financial institution ratings.

Published on 24 November 2016

RAM Ratings has reaffirmed Bank Islam Malaysia Berhad’s (the Bank) AA3/Stable/P1 financial institution ratings. Concurrently, we have also reaffirmed the A1/Stable rating of the Bank’s RM1.0 billion Subordinated Sukuk Murabahah Programme (2015/2045). 

The reaffirmation considers Bank Islam’s still-healthy asset-quality indicators and improved capitalisation, as well as our expectation of extraordinary support from its ultimate majority shareholder, Lembaga Tabung Haji (the Fund). The Fund’s support for Bank Islam has been well demonstrated through capital injections, subscription of capital securities and sizeable deposit placements. That said, any significant change in the Fund’s effective shareholding in Bank Islam would necessitate a reassessment of the Bank’s ratings.

The Bank’s gross impaired-financing (GIF) remained healthy at 1.1% as at end-June 2016; its GIF coverage ratio came up to a robust 179%. Meanwhile, its credit-cost ratio is expected to rise to 40–50 basis points without the legacy corporate recoveries recorded in its recent past.  The Bank’s asset quality remains supported by advances to households (73% of gross financing), which mainly comprise home and personal financing facilities. A significant portion (55%) of its household financing facilities entails salary-deduction or salary-transfer arrangements, which mitigate the risk of non-payment. These repayment features are expected to sustain the Bank’s overall asset quality, although job cuts in certain sectors may nudge up delinquencies. 

In tandem with industry trends, Bank Islam’s financing-to-deposits ratio had risen to 86% as at end-June 2016 (end-December 2015: 78%). Although the Bank has retained its strong position in the domestic Islamic banking sphere, its smaller franchise relative to the larger domestic banking groups poses some challenge to the growth of its retail deposits, which account for only 14% of its total deposits. Although the Bank’s liquidity coverage ratio exceeds the minimum requirement, it is still below the industry average.

Amid slowing financing growth and supported by the reinvestment of dividends and the issuance of tier-2 subordinated sukuk, Bank Islam’s common-equity tier-1 and total capital ratios had improved to a respective 12.7% and 15.9% as at end-June 2016 (end-December 2015: 11.7% and 14.9%).

Analytical contact                                        Media contact
Joanne Kek                                                    Padthma Subbiah
(603) 7628 1163                                            (603) 7628 1162
joanne@ram.com.my                                     padthma@ram.com.my