Report ID 5372 Popularity 883 views 2 downloads 
Report Date Nov 2016 Product  
Company / Issuer Bank Muamalat Malaysia Bhd Sector Finance - Financial Institution
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MARC has affirmed its financial institution (FI) ratings of A / MARC-1 on Bank Muamalat Malaysia Berhad (Bank Muamalat) and concurrently affirmed the AIS rating on the Islamic Senior Notes Programme (Senior Sukuk) of up to RM2.0 billion. The outlook on the ratings is stable. The rating on Bank Muamalat’s Senior Sukuk issuance is equalised to its FI rating based on the seniority of the sukuk.

The affirmed FI rating is driven by Bank Muamalat’s relatively modest asset size and weaker asset quality metrics as well as moderate financial performance and constraints posed by its funding profile.

Bank Muamalat’s market share remains modest at 3.7% and 5.0% of domestic Islamic banking gross financing and deposits respectively as at financial year ended March 31, 2016 (FY2016). This to some extent reflects Bank Muamalat’s position as a non-bank backed Islamic bank and which therefore lacks economies of scale in contrast with its larger bank-backed peers that are able to share infrastructure and resources with their parent banks.

For FY2016, Bank Muamalat’s financing growth slowed to 8.0% y-o-y (2015: 12.6%) amid slower economic conditions and funding cost concerns. For 1QFY2017, financing growth slowed further to 6.0% y-o-y. Over the near term, MARC expects financing growth to remain subdued as the bank strengthens its funding profile by shifting from an overdependence on wholesale funding towards a more stable retail deposit structure. As at 1QFY2017, Bank Muamalat’s wholesale funding was a sizeable 67.7% of total customer deposits (FY2016: 69.8%). The bank’s total customer deposits declined sharply by 10.3% to RM17.6 billion as at end-1QFY2017, resulting in the bank’s financing-to-deposit ratio increasing to 84.5% (FY2016: 75.3%). The rating agency also notes that the significant increase in interbank deposits to RM2,298.7 million (FY2016: RM442.3 million) underscores the bank’s modest reach in terms of branch network which limits its ability to increase current account and saving account (CASA) deposits.

Bank Muamalat’s financing portfolio remains fairly diversified with residential property financing accounting for 31.3% of total financing as at end-FY2016. The bank is focusing on increasing financing to segments which would provide higher returns, particularly the personal financing and small and medium enterprise (SME) segments. Personal financing accounted for 26.1% and SME financing less than 1.0% of total financing; however, any sharp increase in financing to these segments could pose higher risk. Bank Muamalat’s asset quality remains comparatively weaker than its peers despite improvement in its gross impaired financing ratio over the past two years. As at end-1QFY2017, the gross impaired financing ratio stood at 2.3%, higher than the industry average of 1.36%. This notwithstanding, the bank’s financing loss coverage ratio increased marginally to 89.8% as at 1QFY2017, above the industry average of 83.0%.

Bank Muamalat’s strong capital ratios with Tier 1 and total capital ratio (CAR) standing at 13.8% and 16.1% respectively as at 1QFY2017 (FY2016: 13.8%; 16.0%) provide some buffer against a moderate increase in impairment levels. The bank’s capital position is supported by the replacement of the non-Basel III-compliant RM400 million Tier-2 Capital Islamic Subordinated Sukuk with the new Basel III-compliant Subordinated Sukuk of up to RM1.0 billion; as at 1QFY2017, a total of RM250 million has been issued.

In FY2016, pre-tax profit increased by 25.0% y-o-y to RM167.9 million (excluding costs incurred for voluntary separation scheme in FY2015), attributable to higher net financing income and lower operating expenses. Net financing income was supported by a growth in financing book and higher net financing margin, which rose to 2.50% (FY2015: 2.22%). A decrease in personnel expenses following the voluntary separation scheme in FY2015 also contributed to the improved profitability. In FY2016, the bank’s cost-to-income ratio improved to 60.5% (FY2015: 75.6%) but remains among the highest of its peers. Continuing from its increased pre-tax profit in FY2016, the pre-tax profit for 1QFY2017 increased by 12.2% y-o-y to RM40.4 million.

The stable outlook on the rating reflects MARC’s expectation that Bank Muamalat will be able to maintain its credit profile over the next 12 to 18 months on assumption of moderate economic challenges.

Major Rating Factors


  • Adequate capital position; and
  • Improved risk management system.


  • Weak asset quality;and
  • Intense competition in the Malaysian banking sector.