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 the Bank’s sukuk, issued through its funding conduits, have also been reaffirmed.
The reaffirmation is premised on the Bank’s strong foothold in personal financing (PF), particularly among civil servants, and robust loss-absorbing capacity. Nonetheless, its profitability has been tapering off amid keen competition that has eroded its margins. That said, we expect Bank Rakyat to benefit from government support, if needed, given its status as a cooperative bank-cum-developmental financial institution.
Given its sizeable PF portfolio that is supported by non-discretionary salary-deduction and transfer mechanisms, Bank Rakyat’s asset quality has remained sound. As at end-June 2017, its gross impaired-financing (GIF) ratio stood at 1.9% while its GIF coverage ratio (inclusive of regulatory reserves) came up to a comfortable 129.1%. While there were some upticks in impairments for property financing (including non-residential property) and personal financing, some reclassification of its corporate financing had helped offset the impact.
In fiscal 2016, the Bank’s adjusted pre-tax profit and return on risk-weighted assets (RORWA) declined to RM1.7 billion and 2.4%, respectively (fiscal 2015: RM1.8 billion and 2.7%). While its annualised RORWA had recovered to 2.6% (annualised) on the back of a lucrative net financing margin of 3.1% (annualised), the Bank’s profitability is likely to stay pressured amid the keenly competitive financing and funding markets. The Bank’s proportion of current- and savings-account deposits is also lower than the industry average. In addition, it faces a high level of depositor–concentration risk.
Backed by healthy internal capital generation, Bank Rakyat’s capitalisation is robust. Inclusive of its profit in 1H fiscal 2017, the Bank’s Basel I core capital and risk-weighted capital adequacy ratios stood at a respective 19.9% and 21.5% as at end-June 2017.
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
Chew Wei Li
(603) 7628 1025
weili@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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