RAM Ratings has reaffirmed Bank Kerjasama Rakyat Malaysia Berhad’s (Bank Rakyat or the Bank) AA2/Stable/P1 financial institution ratings. Concurrently, the ratings of its sukuk, issued through its funding conduits, have also been reaffirmed. Bank Rakyat is a cooperative-cum-development financial institution with a strong foothold in personal financing (PF), particularly among civil servants.

Published on 15 November 2016

RAM Ratings has reaffirmed Bank Kerjasama Rakyat Malaysia Berhad’s (Bank Rakyat or the Bank) AA2/Stable/P1 financial institution ratings. Concurrently, the ratings of its sukuk, issued through its funding conduits, have also been reaffirmed. Bank Rakyat is a cooperative-cum-development financial institution with a strong foothold in personal financing (PF), particularly among civil servants.

The Malaysian Anti-Corruption Commission recently brought charges against Bank Rakyat’s chairman, managing director and several other personnel. These incidents draw our concern as management assessment features as a key part of our rating consideration. Notwithstanding this, our view of expected ready support from the Government, Bank Rakyat’s strong PF franchise and robust loss-absorbing capacity underpin the rating reaffirmation at this juncture.

Bank Rakyat’s asset quality is supported by a sizeable PF portfolio that benefits from repayments via non-discretionary salary-deduction/transfer mechanisms but balanced by a weak corporate-financing portfolio. The Bank’s gross impaired-financing (GIF) ratio remained satisfactory at 2.1% as at end-June 2016 (end-December 2015: 1.9%); the uptick is attributable to a few corporate borrowers. Thanks to strong recoveries, Bank Rakyat recorded a net impairment write-back in 1H fiscal 2016, although further provisions on lumpy impaired accounts cannot be ruled out. As at end-June 2016, the Bank’s GIF coverage ratio (inclusive of regulatory reserves) stood at a comfortable 108%. 

Bank Rakyat chalked up a pre-tax profit of RM900 million in 1H fiscal 2016. Its ROA remained healthy at 1.9% (annualised), thanks to a lucrative net financing margin of 2.9% (annualised). Nonetheless, the Bank’s profitability has been tapering off amid keen competition that has eroded its margins over the years. The margin compression is also attributable to Bank Rakyat’s relatively weak deposit franchise. The proportions of the Bank’s individual and current- and savings-account deposits are lower than the industry averages, although some improvement has been observed. In addition, it faces a high level of depositor concentration.

Backed by healthy internal capital generation and the periodic issuance of new shares, Bank Rakyat’s capitalisation is robust. Inclusive of its profit in 1H fiscal 2016, the Bank’s entity-level Basel I core capital and risk-weighted capital adequacy ratios would stand at a respective 19.4% and 20.4% as at end-June 2016.

Table 1: Bank Rakyat’s issue ratings

	Ratings
Imtiaz Sukuk Berhad
RM1 billion Islamic MTN Programme (2012/2022)	AA2(s)/Stable
Imtiaz Sukuk II Berhad
RM9 billion Islamic MTN and Islamic CP Programme (2013/2023)	AA2(s)/Stable/P1(s)
Mumtaz Rakyat Sukuk Berhad
RM5 billion Subordinated Sukuk Murabahah Programme (2016/2036)	AA3(s)/Stable

Analytical contact                                        Media contact
Lim Yu Cheng, CFA                                       Padthma Subbiah
(603) 7628 1188                                            (603) 7628 1162