MARC has affirmed Maybank Islamic Berhad’s (Maybank Islamic) long-term and short-term financial institution (FI) ratings of AAA and MARC-1 respectively with a stable outlook. The long-term rating of Maybank Islamic is equalised with the rating of its parent Malayan Banking Berhad (Maybank) on the basis of the former’s significance as Maybank’s Islamic banking arm and its contribution to group profitability. Both banking entities are also operationally integrated with shared branding between them, underpinning MARC’s assessment of a high likelihood of full and timely financial support from the parent.

Maybank Islamic maintains a lead position in the domestic Islamic banking industry with a 30.9% market share of assets as at end-June 2016. Financing growth, averaging at 22.9% per annum (p.a.) over the last five years, has outpaced the industry average of 19.3% p.a. over the same period. The rapid pace of financing growth has contributed to a weakening in Maybank Islamic’s asset quality metrics, partly due to the seasoning effect. The gross impaired financing ratio increased to 1.17% as at end-June 2016 from 0.67% as at end-2015 with the higher impairment arising mainly from the corporate segment. However, Maybank Islamic’s financing loss coverage ratio has declined to an adequate 74.6% as at end-June 2016 from 109.5% as at end-2015. MARC views that in light of the prevailing challenging economic conditions, the likelihood for the Islamic bank’s asset quality to weaken further has increased, which could result in higher provisioning over the near term.

Maybank Islamic maintains a sound capital position as reflected by CET1 and total capital ratios of 13.9% and 18.4% respectively as at end-June 2016 (2015: 12.4%; 16.5%), supported by internal capital generation and the Restricted Profit Sharing Investment Account (RPSIA) maintained by its parent. In addition, its capital position benefited from the reclassification of Mudharabah deposits to investment accounts in June 2015, enabling the Islamic bank to transfer the credit risk on assets funded by investment accounts to investment account holders. Largely due to the reclassification, the risk-weighted assets (RWA) for credit risk absorbed by the parent and investment account holders rose to RM15.4 billion (2015: RM9.1 billion for RPSIA). As a result, total RWA declined by 8.7% y-o-y as compared to the 14.6% y-o-y increase in capital base in 1H2016, providing an improved buffer for growth and for absorbing credit loss.

MARC observes Maybank Islamic’s customer deposits has remained fairly unchanged at RM106.3 billion as at end-June 2016 following the reclassification of Mudharabah deposits; however, on including its investment account balance of RM31.0 billion, customer deposit growth was strong at 28.9% y-o-y as at end-June 2016. The gross financing-to-deposit ratio remained high at 100.8% (2015: 107.3%) but would stand lower at 88.7% on excluding financing support from Maybank via the RPSIA of RM12.9 billion (end-2015: RM11.0 billion).

For 1H2016, the net financing margin was marginally higher at 1.90% due to an uptick in financing rate for certain segments (1H2015: 1.88%). Maybank Islamic’s pre-tax pre-provision profit grew by 14.7% y-o-y to RM1,086.0 million, largely attributed to the increase in financing growth in the period. MARC notes that Maybank Islamic is on track to comply with the Basel III framework; it issued RM2.0 billion Tier-2 Basel III-compliant subordinated sukuk in February 2016 and redeemed its RM1.0 billion non-Basel III-compliant sukuk in March 2016.

The stable outlook on Maybank Islamic reflects MARC’s expectation that Maybank Islamic will sustain its strong market position in the domestic Islamic banking industry and remain a core entity of the Maybank group.

Contacts:
Afeeq Amiri, +603-2082 2256/ afeeqamiri@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.