MARC Ratings has assigned final ratings to Bank Muamalat Malaysia Berhad’s Sukuk Wakalah Programme of up to RM5.0 billion as follows:

Concurrently, the rating agency has affirmed its financial institution (FI) ratings of A+/MARC-1 on Bank Muamalat and its rating of A+_IS on the bank’s Islamic Senior Notes Programme (Senior Sukuk) of up to RM2.0 billion. The outlook on all ratings is stable.

The ratings on Bank Muamalat’s existing Senior Sukuk as well as the new Senior Sukuk Wakalah are equalised to the bank’s long-term FI rating based on the seniority of the sukuk. The rating differentials of Tier-2 Sukuk Wakalah and AT-1 Sukuk Wakalah with the FI rating reflect their subordination to the senior obligations of Bank Muamalat in accordance to MARC Ratings’ methodology. 

The FI rating affirmation considers Bank Muamalat’s healthy asset quality metrics and improving profitability trend on the back of sustained strong financial growth. In terms of capitalisation level, the bank has strengthened its total capital ratio to 17.6% which would be bolstered by the potential issuance of AT-1 Sukuk Wakalah in the near term.  

In 2022, Bank Muamalat’s financing book grew 16.3% y-o-y to RM24.3 billion, outpacing the domestic Islamic banking industry’s 12.4% y-o-y growth over the same period. For 2023, the bank expects the financing growth to taper to 14.0% y-o-y. Financing to the retail sector, mainly housing and personal financing, would remain the primary growth drivers. The portfolios which formed about 60% of total financing as at end-2022, expanded by a combined 21.5% y-o-y. 

Gross impaired financing (GIF) ratio remains low at 0.85% as at end-2022 (2021: 0.83%) compared to the Islamic banking industry average of 1.57%. As at end-2022, only 0.1% of the bank’s financing was placed under relief measures (end-2021: 28.7%) as these approach tail end, implying minimal impact on the bank’s asset quality. Credit risk is also mitigated by Bank Muamalat’s policy that requires direct salary transfer arrangements for its retail sector financing. MARC Ratings notes that Bank Muamalat had financing loss coverage of 125.5% as at end-2022 which would moderate the impact of any weakening in asset quality on its balance sheet. 

Common Equity Tier 1 (CET1) and total capital ratios as at end-2022 stood at 12.5% and 17.6%, largely in line with its peers. Given the strong pace of its financing growth, Bank Muamalat has the option to issue subordinated sukuk under the new Sukuk Wakalah Programme to support its capitalisation level. The rating agency notes that the retention of dividend over the years has enhanced its capital. 

In 2022, pre-tax profit grew by 20.3% y-o-y to RM306.7 million on the back of a larger financing base. Net financing income, which rose by 21.8% y-o-y to RM664.5 million, also gained from multiple overnight policy rate (OPR) hikes as its financing book was repriced more quickly than deposits during the period. Net financing margin stood at 2.58% (2021: 2.56%) while return on assets (ROA) and return on equity (ROE) increased to 0.75% and 7.90% (2021: 0.59%; 5.82%).

The bank continued to rely on wholesale funding which accounted for 70.1% of total deposits of RM26.3 billion as at end-2022. While the top 10 depositors accounted for 35.9%, exposing it to some degree of depositor concentration risk, these are government-related entities which tend to be stickier. Its current and savings account (CASA) deposits of 34.0% remains higher than the industry average of 25.9%. Its liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) stood at 127.9% and 109.3% (industry average’s LCR: 146.7%).

The stable outlook reflects MARC Ratings’ expectation that Bank Muamalat’s asset quality and profitability metrics will remain broadly stable.

Any upgrade would factor the size of the bank’s financing base, its growth track record and maintaining sound asset quality and healthy capitalisation metrics.

Any change in rating and/or outlook would be driven by a sharp weakening in the bank’s asset quality and profitability measures.