BANK MUAMALAT MALAYSIA BERHAD - 2018
|Report ID||5827||Popularity||527 views 36 downloads|
|Report Date||Nov 2018||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 its AIS rating on the bank’s Islamic Senior Notes programme (Senior Sukuk) of up to RM2.0 billion. The rating on Bank Muamalat’s Senior Sukuk programme is equalised to its long-term FI rating based on the seniority of the sukuk. The outlook on the ratings is stable.
The stable outlook on the ratings incorporates MARC’s expectation that Bank Muamalat will not face significant weakness in its asset quality metrics and will be able to manage its funding profile to support its financing growth over the next 12 months.
Bank Muamalat’s market share remains modest at 3.0% and 4.0% of the domestic Islamic banking sector’s gross financing and total deposits as at end-March 2018 (FY2018). Bank Muamalat is not backed by a larger banking group and as such lacks economies of scale compared to its domestic peers that are able to share infrastructure and resources with their parent bank.
For 1QFY2019, the bank’s financing portfolio grew modestly by 0.7% y-o-y after registering a contraction in FY2018. Low financing growth has been partly attributed to the bank’s efforts to strengthen its funding structure. The bank’s funding profile remains largely characterised by volatile and costlier wholesale deposits which comprised 57.2% of the bank’s total deposits as at 1QFY2019 (FY2018: 60.9%). Wholesale funding, however, has been exhibiting a declining trend since 2016 as the bank began shifting its funding profile towards a more stable retail deposit structure. Notwithstanding the bank’s efforts, total deposits declined by 7.0% to RM18.8 billion as at 1QFY2019 due to intense competition for deposits among Islamic banks. Accordingly, the gross financing-to-deposits ratio increased to 79.9% (FY2018: 73.8%).
In terms of financing portfolio, residential property financing remained the largest segment, comprising 30.8% of total financing as at 1QFY2019. This is followed by working capital at 28.0% and personal financing at 25.5%. SME financing, which the bank is expected to focus on in the medium term, was minimal at less than 1.0%. Moving forward, the bank intends to focus on Amanah Saham Bumiputera (ASB) financing, a new investment scheme targeted at police and armed forces personnel.
As at end-1QFY2019, Bank Muamalat’s gross impaired financing (GIF) ratio stood at 2.86%, an increase from 1.92% at end-FY2018. The increase in the GIF was mainly from a one-off increase of RM108.1 million due to adjustments following the adoption of MFRS 9 in January 2018. Excluding the effect of MFRS 9, the GIF ratio would be 2.14%, relatively weaker than the Islamic banking industry average of 1.34% as at end-1QFY2019. The bank’s financing loss coverage ratio stood at 72.3%, which was also considerably lower than the industry average of 102.2% during the same period.
Asset quality concerns are somewhat moderated by the bank’s adequate capital position, with its Tier 1 and total capital ratios standing at 14.6% and 17.4% as at 1QFY2019 (FY2018: 16.0%; 18.4%). The decline in capital ratios was mainly due to a one-off impact from the adoption of MFRS 9; the capital base reduced by 6.5%. The bank’s capital position is supported by its existing Basel III-compliant Subordinated Sukuk of up to RM1.0 billion; a total of RM250 million has been issued as at end-June 2018.
In FY2018, the bank’s pre-tax profit grew by 35.2% y-o-y to RM230.5 million, boosted by an impairment write-back of RM50.1 million. On excluding the impairment write-back, its pre-tax profit would be RM180.4 million, an increase of 5.8% from FY2017. Cost-to-income ratio rose to 69.4% in FY2018 (FY2017: 58.6%). The bank’s pre-tax profit in 1QFY2019 was flat at RM44.5 million.
Major Rating Factors