RAM Ratings reaffirms Maybank Islamic Berhad's AAA/Stable/P1 financial institution ratings

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1. Media Release RAM Ratings reaffirms Maybank Islamic Berhad ’s AAA/Stable/P1 financial institution ratings RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings (FIRs) of Maybank Islamic Berhad (the Bank). Concurrently, the ratings of the Bank’s sukuk have also been reaffirmed. The FIRs reflect that of Malayan Banking Berhad (Maybank or the Group, rated AAA/Stable/P1), and are premised on the Bank’s strategic role as the Islamic banking arm of the Group. As such, ready parental support from the Group is expected, if required. Maybank Islamic stands among the world’s 5 largest Islamic banks. On its own, it is the biggest domestic Shariah lender. The Bank accounted for 34% of the Malaysian Islamic banking sector’s financing and a third of its deposits and investments accounts (IAs) as at end-September 2017. Although showing a declining trend, Maybank Islamic still commands the lion’s share (83%) of the industry’s IAs. Notably, the Bank’s Islamic financing made up about 56% of the Group’s domestic financing as at the same date, underlining its strategic importance to Maybank. As at end-September 2017, Maybank Islamic’s gross impaired-financing (GIF) ratio came up to a still-healthy 1.1% (end-December 2016: 1.0%). However, the Bank’s asset quality remained pressured by its corporate books, particularly from the oil and gas as well as commodities sectors. The Bank’s credit-cost ratio could also increase from the potential additional provisioning requirements of the aforementioned sectors. As at end-September 2017, its GIF coverage ratio (inclusive of regulatory reserves and allowances for impairment losses on financing related to restricted profit-sharing IAs (RPSIAs)) stood at a sound 123.6%. Meanwhile, the Bank’s funding profile is still relatively weak, with its financing-todeposits ratio coming in at a lofty 105.5% as at end-September 2017. Adjusting for funding placements by its parents, the ratio would improve to 91.9%. We derive comfort from the ready funding support Maybank Islamic enjoys from the Group. On the other hand, the Bank’s liquidity profile has stayed healthy; its liquidity coverage ratio averaging above 100% in 3Q fiscal 2017. RPSIAs and IAs have been providing substantial capital savings to the Bank in the last few years, given that the credit risks of assets funded by such accounts are borne by its investors. Nonetheless, these savings are expected to taper off as the
2. Bank attempts to strike a balance between the capital savings and the higher cost of funds . Despite a sizeable dividend payout, Maybank Islamic’s common-equity tier-1 and total capital ratios remained sound at 11.9% and 16.2%, respectively, as at end-September 2017. The Bank’s recent issuance of RM1.0 billion of additional tier-1 capital securities would lift its pro forma total capital ratio to 17.7% as at the same date. Table 1: Maybank Islamic’s sukuk ratings Instrument RM10.0 billion Subordinated Sukuk Murabahah Programme (2014/2034) RM10.0 billion Islamic Commercial Paper/Medium-Term Notes Programme (2017/2024) RM10.0 billion Islamic Additional Tier-1 Capital Securities Programme (2017/2117) Rating AA1/Stable/AAA/Stable/P1 AA3/Stable/- Analytical contact Liang Huey Jean (603) 7628 1124 jean@ram.com.my Media contact Padthma Subbiah (603) 7628 1162 padthma@ram.com.my Date of release: 5 January 2018 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 2018 by RAM Rating Services Berhad