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 AAA_IS on Agrobank’s Islamic Medium-Term Notes (IMTN) Programme. The ratings outlook is stable.

The ratings affirmation is premised on Agrobank’s status as a wholly government-owned development financial institution (DFI) with a mandate to chart the growth and development of Malaysia’s agricultural sector. Agrobank is regulated by Bank Negara Malaysia (BNM) while its activities are guided by policies set by the Ministry of Agriculture and Food Security (MAFS). Agrobank continues to benefit from funding support from the government and government-related entities, accounting for about 48.4% of its funding profile as at end-2022. 

Agrobank’s financing book grew slower by 3.5% y-o-y to RM14.2 billion in 2022, largely due to a growth contraction of the crops sector. This was offset by the sharper growth of the retail and wholesale trade sector (+14.1% y-o-y) as well as the household sector (+9.0% y-o-y), accounting for 43% of Agrobank’s gross financing. These also include personal financing to borrowers who work under MAFS or within agriculture-designated areas such as FELDA; these made up about half of the DFI’s financing book as at end-2022. The government’s allocation of RM610 million to Agrobank under Budget 2023 is expected to support financing growth, although challenging economic conditions amid the higher interest rate environment would weigh on demand for agro-based financing. 

Gross impaired financing (GIF) ratio rose to 7.3% in 2022 (2021: 6.4%). The high GIF is largely reflective of Agrobank’s developmental mandate which exposes the DFI to higher credit risk. GIF could rise going forward as about 26% of its financing portfolio is still under relief measures (2021: 33%), which are expected to be wound down gradually.

Net financing income increased by 11.1% y-o-y to RM726.8 million, mainly supported by a larger financing book and repricing of the financing in line with several increases in the overnight policy rate (OPR) in 2022. Net financing margin (NFM) rose to 3.9% in 2022 (2021: 3.6%). This notwithstanding, net profit declined slightly to RM105.6 million (2021: RM106.7 million) due in part to higher tax expenses of RM60.9 million incurred during the year; this stemmed from the one-off Cukai Makmur of 33% in 2022. During the period, the bank registered return on assets (ROA) and return on equity (ROE) of 0.6% and 3.3%.

The bank’s investment portfolio amounted to about RM3.5 billion or 18% of total assets as at end-2022, of which corporate sukuk and Malaysian Government Investment Issues (MGII) made up 60% and 40%. In 2022, Agrobank’s investment saw an unrealised marked-to-market loss of RM44.3 million amid aggressive policy rate hikes. Capitalisation levels as reflected by core capital ratio (CCR) and risk-weighted capital ratio (RWCR) remained strong at 20.5% and 25.0% (2021: 21.1% and 25.7%), and were in line with other domestic DFIs.  

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.