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Press Release
04 Oct | Thursday
RAM Ratings assigns AA3/Stable/P1 ratings to AFFIN Islamic Bank
RAM Ratings has assigned ratings of AA3/Stable/P1 to AFFIN Islamic Bank Berhad (AFFIN Islamic or the Bank), the Islamic banking subsidiary of AFFIN Bank Berhad (AFFIN Bank or the Group, rated AA3/Stable/P1). The ratings are premised on AFFIN Islamic’s strategic role as the Islamic banking arm of the Group. Concurrently, we have assigned the following ratings to AFFIN Islamic’s proposed sukuk programme (Sukuk Programme): 
 
Sukuk Programme Long-term Rating Outlook
Proposed RM5.0 billion Islamic Medium Term Note Programme 
i. Senior Sukuk Murabahah*
ii. Tier 2 Sukuk Murabahah*
iii. Additional Tier 1 Capital Sukuk Wakalah*
 
*combined limit of RM5.0 billion
 
i. AA3
ii. A1
iii. A3
 
Stable
 
The Tier 2 Sukuk Murabahah and Additional Tier 1 Capital Sukuk Wakalah to be issued under the proposed Sukuk Programme are Basel III-compliant and will qualify as tier-2 and additional tier-1 regulatory capital, respectively. Both instruments have a loss-absorption feature linked to the occurrence of a non-viability event.
 
Given AFFIN Islamic’s crucial role in the Group, we expect capital and funding support from the Group to be forthcoming, if the need arises. Notably, the Bank received three capital injections from the Group, amounting to RM100 million each in 2015 and 2016 and RM500 million in 2017 – a reflection of its importance to the Group. AFFIN Islamic leverages significantly on AFFIN Bank’s common infrastructure, risk management systems and branch network, allowing it to gain from economies of scale.
 
The Group’s implementation of its Priority Islamic Policy in June 2016 had translated into significant growth for AFFIN Islamic in recent years. The Bank’s financing base expanded by a rapid 29% in FY Dec 2017 and a subsequent 26% (annualised) in 1H FY Dec 2018. However, AFFIN Islamic’s asset quality may come under pressure owing to strong growth as its financing book seasons, albeit remaining at a manageable level. The Bank’s gross impaired financing (GIF) stood at 0.9% as at end-June 2018. We further derive comfort from the Bank’s healthy GIF coverage ratio (including regulatory reserves) of 143.5% as at the same date. 
 
While the Bank registered a higher pre-tax profit of RM85.6 million in 1H FY Dec 2018 (1H FY Dec 2017: RM55.7 million), its return on risk-weighted assets of 1.4% (annualised) for the period is comparatively lower than its industry peers. This is largely attributable to its thin margins, owing to a relatively small proportion of current account and savings account deposits, which made up 18% of its customer deposits as at end-June 2018 (industry: 27%). AFFIN Islamic’s capitalisation is deemed sound, with its common equity tier-1 capital ratio coming in at 11.1% as at end-June 2018 (end-December 2017: 15.1%), albeit lowered due to its swelling financing base.
 
Analytical contact
Liang Huey Jean
(603) 7628 1124
jean@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 116
padthma@ram.com.my
 
Date of release: 4 October 2018
 
 
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
Ó Copyright 2018 by RAM Rating Services Berhad
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