MARC has assigned long-term and short-term financial institution ratings of AAA/MARC-1 to Maybank Islamic Berhad (Maybank Islamic). At the same, MARC has also assigned a AA+IS rating to Maybank Islamic’s proposed Islamic Subordinated Sukuk issuance of RM1.0 billion in nominal value. The outlook on the ratings is stable. Maybank Islamic’s financial institution ratings are equalised with its parent, Malayan Banking Berhad (Maybank). MARC considers Maybank Islamic to be one of the core subsidiaries of Maybank and an integral part of the Group. Maybank Islamic’s ratings therefore, reflect a very high probability of support from its parent. Maybank’s ownership in Maybank Islamic, the operational integration and shared branding, in addition to the strategic role of Maybank Islamic in the Group’s Islamic banking operations are key factors underpinning MARC’s opinion that Maybank Islamic will benefit from the full support and credit strength of the Maybank Group.

The Subordinated Sukuk, which qualifies as Tier-2 capital for Maybank Islamic, is rated one notch lower than Maybank Islamic’s standalone rating, reflecting the subordinated position of the Sukuk relative to Maybank Islamic’s depositors and other senior creditors.

Wholly-owned by Maybank, Maybank Islamic serves as the Islamic banking arm of the Maybank Group. Maybank Islamic commenced operations on January 1, 2008 with the transfer of existing business under the Islamic banking window of Maybank. As of June 30, 2010 (FY2010), Maybank Islamic is the largest domestic Islamic bank with assets of RM44.2 billion. Maybank Islamic accounted for approximately 24.5% of the Group’s total domestic loans as at end-June 2010. Its retail banking operations provide a wide range of products and services. The Maybank Group strategy aims to achieve a leadership position in Islamic banking at the ASEAN level. Accordingly, Maybank Islamic is targeting to grow its financing base so that it will contribute at least one-third of total Group domestic loans and financing by 2015. MARC believes that the capacity for sustained product innovation and the ability to leverage the Group’s extensive distribution channels will be key to growing Maybank Islamic’s market presence in a highly competitive business environment. Accordingly, MARC recognises Maybank Islamic’s important role in the achievement of Maybank’s strategic objectives of expanding its Islamic banking franchise.

Maybank Islamic’s financing portfolio registered strong growth in FY2009 and FY2010. Financing activities reported a growth rate of 31.3% in FY2010 (FY2009: 20.9%), slightly below the Islamic banking industry’s growth of 32.6% over the same period. Working capital, transport vehicles and securities financing contributed to 35.0%, 21.8% and 32.7% respectively of incremental financing growth during FY2010. The bank is not exposed to equity participation (Musyarakah) modes of finance. Maybank Islamic’s gross non-performing financing (NPF) ratio improved to 2.7% at end-2010 from 5.1% at end-2008. Apart from asset quality improvements, MARC notes the bank has bolstered its financing loss reserves which rose to 125.3% at end-June 2010 compared to 95.4% at end-2009.

On the funding front, Maybank Islamic leverages Maybank Group’s broad distribution network to grow its customer deposit base, which reached RM34.5 billion as at end-FY2010 (FY2009: RM24.3 billion). The bank’s growing deposit base has helped to lower its financing-to-deposits ratio to 100.2% (FY2009: 108.4%), although this remains much higher compared to the domestic Islamic banking sector’s average of 74.5%. Nevertheless, support from the bank’s parent towards overall funding should be forthcoming as evidenced by the amount placed by the holding company amounting to RM4.4 billion at end-2010 (2009: RM5.7 billion).

Maybank Islamic saw a 30.4% growth in net financing income in FY2010 to RM1.2 billion, driven by strong financing growth momentum. The steady growth in the bank’s top line revenue has helped to sustain its profitability with a return on assets (ROA) of 1.04% in FY2010 (FY2009: 1.17%), albeit lower from the previous year due to higher financing loss allowances and higher operating expenses.

Maybank Islamic’s capitalisation ratios at end-June 2010, although above regulatory levels, were lower compared to the industry’s average as a result of the rapid growth in risk-weighted assets. As at end-June 2010, Maybank Islamic’s Core Capital Ratio (CCR) and Risk Weighted Capital Ratio (RWCR) were recorded at 9.1% and 10.7% respectively (Islamic banking industry ratios: 12.2% and 14.9% respectively). The issuance of the proposed Subordinated Sukuk will help augment the bank’s Tier-2 capital.

The stable outlook on the ratings reflects the outlook on parent, Maybank’s rating and MARC’s view that Maybank Islamic will continue to fully benefit from Maybank Group’s credit profile. In addition, the agency expects the bank to maintain its strong market position in the domestic Islamic banking sector. MARC also believes that the Group’s sound risk management practices and reserving culture should help mitigate concerns with regard to its prospective operating performance and competitive challenges facing the bank.

Contacts:
Ahmad Rizal Farid, +603-2082 2253/ arizal@marc.com.my;
Lim Kok Seng, +603-2082 2272/ kokseng@marc.com.my;
Anandakumar Jegarasasingam, +603-2082 2250/ kumar@marc.com.my.