MARC has assigned preliminary ratings of AAA_IS/MARC-1_IS on Small Medium Enterprise Development Bank Malaysia Berhad’s (SME Bank) proposed Islamic Medium-Term Notes (IMTNs) Programme of up to RM3.0 billion (which shall include Sustainability IMTNs) and Islamic Commercial Papers (ICPs) Programme of up to RM1.0 billion, with a combined limit in nominal value of up to RM3.0 billion. Concurrently, the rating agency has affirmed its financial institution (FI) rating of AAA. The ratings outlook is stable.

SME Bank’s status as a wholly government-owned development financial institution (DFI) with a mandate to develop small and medium enterprises (SMEs) remains a key rating driver. It is regulated by Bank Negara Malaysia and supervised by the Ministry of Entrepreneur Development and Cooperatives, which underscores the importance the government has placed on the development of SMEs in Malaysia.

For 9M2020, SME Bank’s strong financing growth of 12.4% y-o-y to RM7.6 billion was aided by the government’s stimulus package to alleviate the SME sector’s difficulties due to the COVID-19 pandemic. The total outstanding amount of SME Bank’s relief programmes was RM2.9 billion as at end-2020. The DFI has continued to undertake restructuring and rescheduling (R&R) on affected financing to address customers’ payment constraints posed by the challenging environment. Combined with write-offs, SME Bank’s gross impaired financing (GIF) ratio declined to 16.9% as at end-9M2020 (9M2019: 22.7%). On the group level, its GIF ratio stood at 22.0% (9M2019: 28.5%); the higher GIF ratio includes the consolidation of SMEB Asset Management Sdn Bhd, a wholly-owned subsidiary that was set up in 2014 to manage the bank’s impaired financing including legacy financing.

The DFI’s core capital ratio and risk-weighted capital ratio (RWCR) remained stable at 11.5% and 18.3% as at end-9M2020 (9M2019: 11.3%, 18.5%). While downside risk on capital persists in view of its developmental role, MARC opines that capital support from the government would be forthcoming if required. In terms of funding, the DFI’s funding profile remained largely supported by deposits and borrowings from the government and government-related entities as well as by government-guaranteed borrowings and sukuk issuances. These accounted for 77.3% of total funding as at end-9M2020. SME Bank’s status as a DFI has enabled ready access to reliable long-term funding from the government and its related entities.

Contacts:
Farhan Darham, +603-2717 2945/ farhan@marc.com.my;
Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my;
Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my.