BANK MUAMALAT MALAYSIA BERHAD - 2017
|Report ID||5575||Popularity||689 views 20 downloads|
|Report Date||Nov 2017||Product|
|Company / Issuer||Bank Muamalat Malaysia Bhd||Sector||Finance - Financial Institution|
MARC has affirmed its financial institution (FI) ratings of A/MARC-1 on Bank Muamalat Malaysia Berhad (Bank Muamalat) and concurrently affirmed its AIS rating on the bank’s 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 programme is equalised to its long-term FI ratings based on the seniority of the sukuk.
Bank Muamalat provides a full range of Islamic financial services, accounting for 3.4% and 4.8% of domestic Islamic banking gross financings and deposits respectively for the financial year ended March 31, 2017 (FY2017). With an asset size of RM23.5 billion, Bank Muamalat is considered a mid-sized bank; it also lacks economies of scale compared to many of its domestic peers which as part of large banking groups benefit from shared infrastructure and resources. These factors, along with weaker-than-industry averages in key metrics, remain the main consideration in affirming Bank Muamalat’s FI ratings.
Bank Muamalat recorded a financing growth of 2.9% y-o-y in FY2017 compared to the Islamic banking industry growth of 11.6% over the same period. This low growth has been partly attributed to the bank’s funding profile, which remains largely characterised by volatile and costlier wholesale deposits which comprise 67.4% of the bank’s total deposits as at end-June 2017 (1QFY2018). While the bank is seeking to strengthen its retail deposit structure, this task could be challenging given its limited network of 65 branches. Total deposits declined to RM18.1 billion, leading to an increase in the financing-to-deposit ratio to 82.4% in 1QFY2018 (FY2017: 76.4%).
In terms of financing portfolio, residential property financing accounted for 31.2%, personal financing for 25.9% and SME financing, which it expects to focus on in the medium term, less than 1.0%. Gross impaired financing ratio weakened to 2.7% as at end-June 2017 compared to the Islamic banking industry average of 1.4%, with the increase driven by the household sector particularly personal financing. The bank’s financing loss coverage ratio stood at 85.6% as at end-June 2017, which is consistent with the industry average of 84.6%. With the implementation of MFRS 9 beginning 2018, Bank Muamalat’s impairment charges, as with other financial institutions, will potentially increase as banks will be required to record a minimum 12-month expected credit losses at initial recognition.
The aforementioned factors notwithstanding, asset quality concerns are moderated by Bank Muamalat’s strong capital ratios with Tier 1 and total capital ratios (CAR) standing at 14.8% and 17.2% respectively as at end-June 2017 (FY2017: 14.4%; 16.7%). The bank’s capital position is further supported by the new Basel III-compliant Subordinated Sukuk of up to RM1.0 billion; as at end-June 2017, a total of RM250 million has been issued. The bank’s cost-to-income ratio was largely unchanged at 58.6%, while pre-tax profit remained flat at RM170.5 million in FY2017 as the higher net financing was offset by higher losses on revaluation of its financial investments.
The stable outlook on the ratings 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