BANK MUAMALAT MALAYSIA BERHAD - 2021 |
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| Report ID | 60538900432 | Popularity | 754 views 32 downloads | |||||
| Report Date | Dec 2021 | Product | ||||||
| Company / Issuer | Bank Muamalat Malaysia Bhd | Sector | Finance - Financial Institution | |||||
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| Rationale |
Rating action MARC has affirmed its financial institution (FI) ratings of A/MARC-1 on Bank Muamalat Malaysia Berhad (Bank Muamalat) and AIS rating on the bank’s Islamic Senior Notes Programme (Senior Sukuk) of up to RM2.0 billion. The programme currently has an outstanding amount of RM500 million. The ratings outlook is stable. Rationale The FI ratings incorporate Bank Muamalat’s healthy capitalisation levels and improved asset quality metrics relative to the domestic Islamic banking industry. The bank grew sharply in 2020, boosting its profitability metrics. If the bank sustains its improvement over the near term, the rating and/or the outlook could be revised upwards. Financing registered an 18.3% y-o-y growth to RM19.5 billion in 1H2021, maintaining the growth momentum that began in 2020 when it recorded a 14.1% y-o-y increase to RM18.2 million. This is significantly higher than the Islamic banking industry average financing growth, which was recorded at 7.3% in 1H2021. Bank Muamalat has attributed the strength of its growth to a shift in its marketing strategy to extend its reach and focus, and to its digitalisation programme to improve its overall efficiency for processing financing applications and monitoring. The growth has been led by personal financing, which registered a 37.4% y-o-y increase to RM5.7 billion; the consumer financing segment remains a key component of its portfolio. Notwithstanding the growth, the bank’s market share in gross financing and total deposits of the domestic Islamic banking industry remains low at 2.8% and 3.1% in 1H2021, largely reflecting its lack of economies of scale given its network of 66 branches. This contrasts sharply with its Islamic bank-backed peers that can leverage on the infrastructure and resources of their parent banks. Bank Muamalat registered pre-tax profit of RM114.7 million in 1H2021 on the back of a 43.4% y-o-y increase in net financing to RM333.4 million on a larger financing base and lower overnight policy rate (OPR). Its net financing margin improved to 2.66% (1H2020: 2.04%). During the period, the bank registered return on assets (ROA) and return on equity (ROE) of 0.65% and 6.22% (2020: 0.71%; 6.75%). Gross impaired financing (GIF) ratio declined to 1.08% (end-1H2020: 1.31%) and is lower compared to the industry average of 1.46%. The GIF ratio level was contained partly due to the assistance extended to its customers as well as a larger financing base. The assistance includes a six-month moratorium, 50% reduction in monthly instalments, and restructure and reschedule (R&R). We note that about 11.0% of its total financing opted for the assistance. Given the measures undertaken by the bank, MARC assumes that its GIF ratio would remain at about the same level for the remainder of the year. Notwithstanding the improvement, the bank’s asset quality could come under pressure when the relief programmes expire, tentatively in December 2021, and from the seasoning effect of its recent sharp financing growth. Common Equity Tier 1 (CET1) and total capital ratios stood at 14.1% and 17.9% as at end-June 2021, well above the minimum regulatory requirements of 7.0% and 10.5% (including a capital conservation buffer of 2.5%). The strong capitalisation levels provide buffer against potential near-term asset quality weakening. Customer deposits were relatively unchanged at RM21.1 billion. The bank continued to rely on wholesale funding which account for 67.3% of total funding. The retail deposit franchise remains modest with individual deposits accounting for 12.5% of the total deposits. The proportion of current and savings account (CASA) deposits fell marginally to 35.2% (end-2020: 36.1%), though it remains higher than the industry average of 27.4%. Its liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) stood well above the required level at 150.2% and 102.4%. Rating outlook The stable outlook reflects MARC’s expectation that Bank Muamalat would maintain its profitability trend and asset quality metrics over the near term. Rating trajectory Upside scenario The ratings and/or outlook could be upgraded if the bank balances its financing growth while maintaining the improvement in its capitalisation and asset quality metrics. Downside scenario Any change in rating and/or outlook would be driven by sharp weakening in the bank’s asset quality and profitability measures. Key strengths • Healthy capitalisation ratios • Sound asset quality • Improving profitability trend Key challenges • Reliance on wholesale funding • Intense competition in the domestic Islamic banking industry |
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