RAM Ratings Reaffirms Bank Rakyat’s Ratings

Transcription

1. Media Release RAM Ratings reaffirms Bank Rakyat ’s ratings 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 impairedfinancing (GIF) ratio remained satisfactory at 2.1% as at end-June 2016 (endDecember 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,
2. 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) Analytical contact Lim Yu Cheng, CFA (603) 7628 1188 yucheng@ram.com.my AA3(s)/Stable Media contact Padthma Subbiah (603) 7628 1162 padthma@ram.com.my Date of release: 15 November 2016 The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations. RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant. Published by RAM Rating Services Berhad  Copyright 2016 by RAM Rating Services Berhad