Monday, Jul 03, 2023
MARC Ratings has affirmed its long- and short-term financial institution (FI) ratings of AA+/MARC-1 on Kuwait Finance House (Malaysia) Berhad (KFH Malaysia) with a stable outlook.
The long-term FI rating of KFH Malaysia is notched down from the rating of its parent Kuwait Finance House KSC (KFH) of AAA/Stable based on public information. The one notch differential reflects MARC Ratings’ views of KFH Malaysia as a strategic subsidiary of its parent and the explicit intent of support extended to the subsidiary by the parent. This view is supported by KFH’s 100%-ownership in KFH Malaysia and the common branding that exists between the two institutions.
The long-term FI rating of KFH Malaysia is notched down from the rating of its parent Kuwait Finance House KSC (KFH) of AAA/Stable based on public information. The one notch differential reflects MARC Ratings’ views of KFH Malaysia as a strategic subsidiary of its parent and the explicit intent of support extended to the subsidiary by the parent. This view is supported by KFH’s 100%-ownership in KFH Malaysia and the common branding that exists between the two institutions.
KFH’s FI rating is premised on the rating agency’s expectations that the Kuwaiti government will continue to extend support to KFH due to its very high systemic importance as the largest bank in Kuwait and the government’s key ownership in the bank.
MARC Ratings notes KFH Malaysia’s focus on asset quality management and capital preservation, a strategy in place since the pandemic, has continued to weigh on its financing book as it declined further by 4.6% y-o-y to RM3.8 billion as at end-2022. The declining book has also resulted in the gross impaired financing (GIF) ratio remaining high at 6.9% as at end-2022 (end-2021: 6.8%), despite the lower quantum of GIF accrued during the year. The slower accretion of impaired financing was largely due to the financial support extended through relief measures to customers. This formed about 16% of the bank’s financing book as at end-2022 and will continue to pose credit risks once the relief measures expire. While delinquencies could see an uptick in the near term, the bank’s impaired financing coverage ratio of 145% should mitigate any slippages. The bank’s common equity-tier 1 and total capital ratio of 41.1% and 42.2% over the same period should also provide some headroom against unexpected credit losses.
KFH Malaysia’s bottom line performance was stable y-o-y with pre tax profit of RM69.9 million in 2022 (end-2021: RM68.3 million), largely owing to realised gains in its foreign exchange contracts. Over the near term, any upside in its profitability will continue to be constrained by its declining financing portfolio and downward pressure on its margins amid stiff deposit competition. While the bank’s reliance on wholesale deposits raises concerns over the stability of these deposits, KFH Malaysia’s liquidity coverage ratio and net stable funding ratio of 173.9% and 118.5% should help provide some headroom against volatility risk.
Contacts:
Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my
Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my