RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Credit Corporation’s (SCC or the Corporation) outstanding debt instruments.

Published on 23 September 2014

RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Credit Corporation’s (SCC or the Corporation) outstanding debt instruments.
SCC is wholly owned by the State Government of Sabah (whose debt facility is rated AAA/Stable/P1 by RAM), and operates under the purview of the Sabah State Ministry of Finance. The ratings reflect our expectation of continued support for the Corporation from the State Government. This has been clearly demonstrated through the subordination of SCC’s loans from the State Government to its debt securities, the conversion of such loans into share capital, the reinvestment of dividends as capital and the extension of letters of support for the Corporation’s debt securities.
SCC’s financing portfolio was still dominated (93%) by personal-financing facilities for civil servants as at end-December 2013. The repayment of such facilities is conducted through direct salary deductions, thereby reducing the Corporation’s credit risk. As at the same date, SCC’s gross impaired-financing (GIF) ratio had eased to 4% (end-December 2012: 7%), thanks to a surge in its financing base as well as higher recoveries and write-offs. Nonetheless, its credit-cost ratio had risen from 0.7% to 1.0% y-o-y, mainly due to a more stringent provisioning policy and additional provisions relating to the write-offs. The Corporation’s GIF ratio may improve further on additional write-offs this year, although a large proportion of its personal-financing portfolio is unseasoned owing to its rapid growth in recent years.
SCC will remain focused on its personal-financing segment, although business growth is expected to moderate amid tighter underwriting standards and intense competition. However, the Corporation’s healthy capitalisation - with a total capital ratio of 20% - will amply support its financing growth. Notably, SCC relies heavily on wholesale funding for its financing needs as it cannot accept deposits. While this exposes the Corporation to liquidity and roll-over risks, we believe that the State Government will provide ready support if needed.
In FY Dec 2013, SCC’s pre-tax profit strengthened 22% y-o-y to RM68.8 million, on the back of its robust and lucrative personal-financing segment as well as lower funding costs. At the same time, its ROA and net financing margin improved to a respective 3.6% and 5.4% (FY Dec 2012: 3.4% and 5.2%).

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Wong Yin Ching
(603) 7628 1117
yinching@ram.com.my