SMALL MEDIUM ENTERPRISE DEVELOPMENT BANK MALAYSIA BERHAD - 2023 |
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| Report ID | 60538900469455 | Popularity | 453 views 81 downloads | |||||
| Report Date | Jun 2023 | Product | ||||||
| Company / Issuer | Small Medium Enterprise Development Bank Malaysia Bhd | Sector | Finance - Financial Institution | |||||
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| Rationale |
Rating action MARC Ratings has affirmed its financial institution (FI) rating of AAA on Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank). Concurrently, the rating agency has affirmed its ratings of AAAIS /MARC-1IS on the bank’s Islamic Medium-Term Notes (IMTN) Programme of up to RM3.0 billion and Islamic Commercial Papers (ICP) Programme of up to RM1.0 billion with a combined aggregate limit in nominal value of up to RM3.0 billion. The ratings outlook is stable. Rationale The ratings affirmation is driven by SME Bank’s status as a wholly government-owned development financial institution (DFI) with a mandate to develop small and medium enterprises (SMEs) in the country. The DFI is regulated by Bank Negara Malaysia (BNM) and supervised by Kementerian Pembangunan Usahawan dan Koperasi (KUSKOP), underscoring its key role in the growth of SMEs. MARC Ratings notes that in executing the mandated role, SME Bank continues to benefit from funding support from the government and government-related entities, which has accounted for 62.5% of its funding profile as at end-2022. For 2022, SME Bank’s financing portfolio expanded moderately by 5.9% y-o-y to RM8.8 billion with growth mainly coming from its manufacturing (+14.3% y-o-y) and transportation, storage and communications (+9.2% y-o-y) portfolios. These portfolios accounted for 18.5% and 12.5% of gross financing. Under Budget 2023, about RM38.0 billion has been allocated to the SME sector, of which RM1.4 billion has been set aside for SME Bank, highlighting the government’s continued emphasis for the sector and the bank. That said, stiff competition from other financing institutions for SME financing could weigh on the growth of SME Bank whose share of SME financing domestically remains modest at 2.4% (2021: 2.4%). As with other DFIs, the bank is inherently exposed to higher credit risk in view of its developmental mandate. Its gross impaired financing (GIF) ratio remains weak at 16.9% as at end-2022, slightly lower from 18.4% a year ago with the decline largely due to a larger financing base and write-offs. Relief programmes accounted for about 39.6% of SME Bank’s gross financing as at end-2022, down from 48.7% from the year prior. While SME Bank remains accommodative in providing payment assistance programmes, the bank remains exposed to credit risk when the programmes cease. We expect GIF ratio to remain elevated with the gradual winding down of relief measures in the next 12-18 months. SME Bank’s capitalisation levels provide some headroom to absorb unexpected losses. As at end-2022, core capital ratio (CCR) and risk-weighted capital ratio (RWCR) stood at 12.8% and 18.9% (end-2021: 12.9%; 19.2%), below those of its DFI peers. While capitalisation is expected to remain broadly stable over the next 12-18 months, we are cognisant of the bank’s weak internal capital generation, particularly in the last two years, which could strain its buffers. Rating outlook The stable outlook reflects our expectation of ready government support when required. Rating trajectory Downside scenario Downward pressure could occur on the rating if there is an explicit decline in financial and/or operational support from the government. Key strengths
Key risks
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