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Press Release
21 Dec | Thursday
RAM Ratings reaffirms RHB Islamic’s AA2/Stable/P1 ratings

RAM Ratings has reaffirmed the AA2/Stable/P1 financial institution ratings of RHB Islamic Bank Berhad (the Bank), and the AA3/Stable rating of the Bank's RM1.0 billion Subordinated Sukuk Murabahah Programme (2014/2034). The ratings are premised on our expectation that the Bank will continue benefiting from ready parental support, given its strategic importance as the Islamic banking arm of RHB Bank Berhad (the Group, rated AA2/Stable/P1)

RHB Islamic’s asset base had expanded further to RM59 billion as at end-September 2017, driven by its rapid financing growth (+26%, annualised) in 9M FY Dec 2017. Given the Bank's aggressive expansion in recent years, its asset quality could face some pressure as its financing portfolio seasons, especially those from SMEs. Its enlarged financing base contributed to an easing in its gross impaired-financing (GIF) ratio to 0.9% as at end-September 2017. Its credit-cost ratio remained steady at an annualised 0.2%.

Meanwhile, the Bank continues to rely on wholesale funding; about half of its wholesale funding comprises inter-bank funding from its parent, via the Restricted Profit-Sharing Investment Account (RPSIA). This, along with the anticipated liquidity support from RHB Bank, partially mitigates RHB Islamic’s high level of depositor-concentration risk.

The Bank’s strong capitalisation and higher adjusted GIF coverage ratio of 141% as at end-September 2017 (adjusted to include RM215 million of regulatory reserves and allowances for impairment losses on financing related to the RPSIA) provide a comfortable buffer. Based on RAM’s assumption that Bank Negara Malaysia will allow the Bank to release its regulatory reserve to offset additional provisions following the adoption of MFRS 9, the Bank’s regulatory reserve is deemed to provide sufficient coverage, with minimal impact on the first day of implementation.

Meanwhile RHB Islamic’s net financing margin of 1.4% was still lower than its peers’, largely attributable to the Bank’s smaller proportion of low-cost current- and savings-account deposits and a large percentage of financing facilities for government-related clients, which yield finer margins.

Analytical contact
Chan Yin Huei
(603) 7628 1180
yinhuei@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

Date of release: 21 December 2017

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2017 by RAM Rating Services Berhad’s

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