MARC Ratings has affirmed its AAA financial institution (FI) rating on Bank Pertanian Malaysia Berhad (Agrobank). Concurrently, the rating agency has also affirmed its AAA_IS rating on Agrobank’s Islamic Medium-Term Notes (IMTN) Programme. The ratings outlook is stable. 

The ratings reflect MARC Ratings’ view of a very high probability of government support for Agrobank. This is based on the government’s full ownership of Agrobank and the bank’s policy role as an integral part of the government’s agricultural development strategy. Agrobank is regulated by Bank Negara Malaysia (BNM) and has its activities guided by policies set by the Ministry of Agriculture and Food Security (MAFS). As at end-2023, 44.6% of the bank’s funding was sourced from the government and government-related entities. In Budget 2024, the government allocated RM430 million to Agrobank, further illustrating support. 

As a development financial institution (DFI), Agrobank has a narrow business model, in keeping with its policy role. Financing mainly comprises agricultural and agricultural-related financing within various economic sectors including manufacturing, retail and wholesale trade, as well as personal financing extended to those associated with the MAFS or operating within agriculture-designated areas managed by Federal Land Development Authority (FELDA). 

Agrobank’s gross impaired financing (GIF) ratio stood at 7.4% as at end-2023, largely unchanged from the 7.3% as at end-2022. MARC Ratings notes the bank’s high proportion of lower-risk personal financing, of which payments are deducted at source. Nevertheless, asset-quality downside risk remains as the bank still has approximately RM2.8 billion or 19% of its total financing under relief measures as at end-2023, albeit lower than the RM3.7 billion (26%) in 2022.  

In terms of profitability, Agrobank’s net financing income increased by 3.7% y-o-y to RM765.0 million in 2023, supported by a steady 3.9% net financing margin (NFM) and a 4.9% financing growth during the year. The bank also posted higher net profit of RM160.1 million in 2023 (2022: RM117.2 million) on lower financing impairment charges and the absence of Cukai Makmur. Near-term profitability is expected to remain relatively stable, supported by financing growth and steady investment income. As at end-2023, Agrobank’s investment portfolio totalled RM3.0 billion, representing about 14% of total assets and consisting largely of corporate sukuk (68.2%) and Malaysian Government Investment Issues (MGII) (31.8%). In 2023, favourable interest rate movements resulted in mark-to-market profit of RM29.1 million. 

As at end-2023, core capital ratio (CCR) and risk-weighted capital ratio (RWCR) stood at 19.8% and 24.7%. MARC Ratings views Agrobank’s capitalisation as adequate, considering the bank’s higher-risk profile being intrinsic to its development mandate, and the relatively moderate financing loss coverage (end-2023: 59.3%). Any significant migration of financing currently under relief measures to the GIF category would weigh on Agrobank’s earnings and capital ratios. Nevertheless, MARC Ratings understands that the performance of the relief financings has been broadly steady to date, which is likely to keep credit impairments manageable. 

The stable outlook reflects the 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.