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Press Release
21 Dec | Friday
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) as well as the AA3/Stable rating of the Bank’s RM5.0 billion (upsized from RM1 billion) Subordinated Sukuk Murabahah Programme (2014/2034). The ratings are premised on our expectation that the Bank will continue to benefit from ready parental support in view of its strategic importance as the Islamic banking arm of RHB Bank Berhad (the Group, rated AA2/Stable/P1). Operating under a universal banking model, the Bank leverages significantly on its Group’s financial flexibility, branch network and risk management systems. Furthermore, the Bank is able to derive funding support from the Group via restricted profit sharing investment accounts (RPSIAs) arrangement, which amounted to RM8.6 billion, or 16% of its total profit-bearing funds as at end-September 2018.
 
Given the Group’s focus on shariah financing and its target of a 40% contribution by the segment to the Group’s total financing, RHB Islamic’s financing base expanded by a rapid 42% from RM34.1 billion as at end-December 2016 to RM48.3 billion as at end-September 2018. While the enlarged financing base contributed to a lower gross impaired financing (GIF) ratio of 1.1% as at the same date (end-December 2016: 1.2%), we expect some seasoning of the Bank’s financing portfolio, especially its residential property and working capital portfolios. The Bank’s loss absorption capacity remained comfortable with an adjusted GIF coverage ratio of 150% as at end-September 2018. Meanwhile, RHB Islamic’s net financing margin improved to 1.6% in 9M fiscal 2018 (fiscal 2016: 1.4%) albeit still narrower than that of Islamic banking peers. Compression could arise in the future from the imminent repricing of some maturing deposits. 
 
The Bank’s capitalisation stayed robust, its common equity tier-1 ratio standing at 13.5% as at end-September 2018, compared to 10.9% as at end-December 2016. Among others, a RM400 million capital injection from the Group and the adoption of the internal ratings-based approach in the determination of risk-weighted assets contributed to the improvement.
 
Analytical contact
Goh Kwan Kheen, Timothy
(603) 7628 1099
timothy@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
 
Date of release: 21 December 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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