BANK PERTANIAN MALAYSIA BERHAD (AGROBANK) - 2022
|Report ID||6053890046831||Popularity||49 views 6 downloads|
|Report Date||Jul 2022||Product|
|Company / Issuer||Bank Pertanian Malaysia Bhd||Sector||Finance - Financial Institution|
MARC Ratings has affirmed its financial institution (FI) rating of AAA on Bank Pertanian Malaysia Berhad (Agrobank). Concurrently, the rating agency has also affirmed its rating of AAAIS on Agrobank’s Islamic Medium-Term Notes (IMTN) Programme. The ratings outlook is stable.
The FI rating is driven by Agrobank’s status as a wholly government-owned development financial institution (DFI) that has been mandated to chart the growth and development of Malaysia’s agriculture industry. The DFI is regulated by Bank Negara Malaysia (BNM) while its financing activities are guided by policies set by the Ministry of Agriculture and Food Industries (MAFI). Agrobank has continued to benefit from funding support from the government and related entities, which constituted 42.9% of its funding profile as at end-2021.
As at end-2021, Agrobank’s financing portfolio registered a softer growth at 3.9% y-o-y to RM13.7 billion, but still outpacing the banking industry’s primary agriculture financing which fell 0.9%. Growth was aided by the DFI’s continued role to channel the government’s stimulus facilities to those impacted by the pandemic. Notable facilities include the Special Relief Facility and Penjana Agrofood. Agrobank’s financing activities are expected to pick up pace following the resumption of business activities, with economic recovery envisaged to be firmer. This, coupled with the renewed focus on the agriculture industry, supported by the government’s policy on food security would lend strength to the DFI’s portfolio growth.
Agrobank’s gross impaired financing (GIF) ratio remained high at 6.4% as at end-2021, albeit a slight downtick from 6.7% a year earlier. Improvement in asset quality was a result of various relief measures, coupled with write-offs and recoveries. Approximately 33.2% of the bank’s total financing were under relief measures as at end-2021. While the various measures provide some relief on asset quality, clarity on customers’ repayment capabilities would only become more apparent as the bank winds down the repayment assistance. Though delinquencies may exhibit an upward trend in the months ahead, some comfort can be drawn as about 62% of the DFI’s relief measures was accrued from its personal financing portfolio which are salary deductible.
Agrobank’s core capital ratio (CCR) and risk-weighted capital ratio (RWCR) remained robust at 21.1% and 25.7% respectively as at end-2021. Although on a downward trend since 2017 which was largely attributed to the expansion in risk-weighted assets on the back of financing growth, Agrobank’s capitalisation parameters should still accord the DFI with some buffer to withstand weakening in asset quality.
Agrobank’s net profit came in at RM106.7 million in 2021. The improvement in profit performance was largely on the back of a significant decline in provisioning expenses. Correspondingly, the DFI’s return on asset (ROA) and return on equity (ROE) came in higher at 0.6% and 3.3%. While Agrobank’s profitability is expected to remain relatively stable in the near term supported by pick-up in financing activities and wider margins amid the recent 50-bps overnight policy rate (OPR) hike, rollback of relief measures may necessitate further provisioning and could potentially weigh down Agrobank’s bottomline performance in the near term.
The stable outlook reflects MARC Ratings’ expectation of readily available government support when required.
The rating will come under pressure if there is an explicit decline in financial and/or operational support from the government.
• Wholly government-owned development financial institution
• Long track record and expertise in providing financing to the agriculture sector
• Pressure on asset quality once relief measure ends