MARC Ratings has affirmed its financial institution rating of A+ on MBSB Bank Berhad as well as its A+_IS rating on the bank’s RM5.0 billion Sustainability Sukuk Wakalah Programme. The ratings outlook is stable.

The ratings affirmation reflects MBSB Bank’s sound capitalisation and the rating agency’s expectation of continued support to the bank from major shareholder Employees Provident Fund (EPF). The ratings are moderated by MBSB Bank’s comparatively weaker asset quality metrics against those of the Islamic banking sector, and its higher reliance on relatively costlier term deposits. 

In October 2023, the holding company, Malaysia Building Society Berhad (MBSB), acquired a 100% interest in Malaysian Industrial Development Finance Berhad (MIDF) from Permodalan Nasional Berhad (PNB) via a share swap arrangement. This resulted in PNB holding a 12.8% stake in MBSB, while reducing EPF’s share to 57.5% from 65.9%. This notwithstanding, the rating agency expects EPF to continue to provide support to the MBSB group, if needed. In MARC Ratings’ view, the reinvestment of dividends, subscription of rights issue and placement of deposits were strong evidence of EPF’s support. 

The rating agency opines the acquisition of MIDF could complement MBSB’s banking operations by adding full-service stockbroking and asset management services. MARC Ratings understands that over the near-to-medium term, MBSB will prioritise its growth strategy and integration with MIDF; its previous plan to collapse the financial holding company structure and lift the banking unit to the apex of the group has, therefore, been put on hold. 

MBSB Bank’s capitalisation remained sound with Common Equity Tier 1 and total capital ratios standing at 15.9% and 20.0% as at end-September 2023, providing a strong buffer against potential credit losses. During the same period, total financing grew 5.5% to RM40.0 billion, mainly due to working capital and residential property financing growth. Financing remained skewed towards retail customers but the bank aims to strengthen its non-retail portfolio; MBSB Bank plans to have 40% of its financing in the non-retail segment, up from the current 25%. Its non-retail growth strategy includes focusing on small- and medium-sized enterprises financing via guarantee schemes under Syarikat Jaminan Pembiayaan Perniagaan Berhad and Credit Guarantee Corporation Malaysia Berhad. The bank also intends to reduce its corporate exposure by focusing on government-linked companies.

Gross impaired financing (GIF) rose to RM2.2 billion as at end-9M2023 (2022: RM2.1 billion, 2021: RM963 million) due to large corporate impairments, particularly in the construction and non-residential property segments, after the expiry of relief measures in June 2022. The bank’s GIF ratio — at 5.48% as at end-9M2023 — was high against the Islamic banking industry average of 1.56%. Financing loss coverage was comparatively low at 56.4% (2022: 66.0%) due to MBSB Bank’s high share of financing backed by collateral; the collateral was worth RM3.4 billion and 70% of the bank’s impaired financing was collateralised. The decrease in financing loss coverage in 9M2023 was also due in part to the bank’s expectation of near-term recoveries. 

MBSB Bank’s pre-tax profit in 9M2023 came slightly lower at RM309.2 million (9M2022: RM312.4 million) on smaller net financing income and narrower margin (9M2023: 2.00%, 9M2022: 2.81%) as its term deposits were repriced faster than financing. The bank’s annualised return on assets and return on equity were correspondingly lower at 0.59% and 4.13% during the period (2022: 0.91% and 6.45%).  

The bank is reliant on pricier term deposits, which formed 72% of its total funding. Its current and savings account ratio of 6.9% and retail depositor base of 16.8% as at end-September 2023 were substantially lower than the Islamic banking industry average of 26.6% and 29.7%. Depositor concentration is relatively high with the bank’s top 10 depositors accounting for 42% of total deposits as at end-September 2023. However, downside risks are mitigated by the fact that these depositors are largely government-related entities which the rating agency considers stable. MBSB Bank also has ready access to long-term financing from its RM5.0 billion Sustainability Sukuk Wakalah Programme.

Fahmi Hawari, +603-2717 2946/ fahmi@marc.com.my

Farhan Darham, +603-2717 2945/ farhan@marc.com.my 

Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my