[RAM] RAM Ratings affirms MBSB's and MBSB Bank's A2 ratings

RAM Ratings has affirmed Malaysia Building Society Berhad’s (MBSB or the Group) A2/Stable/P1 corporate credit ratings (CCRs). Concurrently, we have affirmed the A2/Stable/P1 financial institution ratings (FIRs) of MBSB Bank Berhad (the Bank) and the ratings of its sukuk facilities (Table 1). Despite its structural subordination as a non-operating holding company, MBSB’s CCRs are equated to the FIRs of the Bank to reflect the former’s debt-free status at the holding company level. 

The affirmations are based on our expectation that the sturdy capital positions of the two entities post-acquisition of Malaysian Industrial Development Finance Berhad (MIDF) will continue to underpin the Group’s credit profile despite asset quality and margin challenges. MBSB’s funding profile remains weak with a small proportion of low-cost current and savings account deposits (<10%) compared to that of the banking system. The ratings also include an uplift to its stand-alone credit profile, incorporating our support assessment of the Group’s largest shareholder, the Employees Provident Fund (EPF or the Fund). In our discussion with the EPF, it reiterated that MBSB is a strategic investment and an important pivot for its Shariah-compliant fund. Notwithstanding its reduced stake, we believe the EPF will step in to provide extraordinary support should MBSB require it. In this regard, RAM will continue to evaluate the Fund’s support which may evolve with time and circumstances.

At this juncture, we have not factored in any upside from the recent acquisition of MIDF, a diversified financial services group involved in investment banking, development finance and asset management. We expect MBSB to derive synergies from this acquisition given minimal business overlaps between MBSB and MIDF, although execution risks remain. 

On a stand-alone basis, the Group’s gross impaired financing (GIF) deteriorated to 6.6% as at end-June 2023 (end-December 2021: 4.6%) due to large corporate impairments, primarily from the construction sector. Its GIF ratio could stay elevated in the near term as resolutions of large, impaired accounts will take time. Given a high proportion of fixed-rate profit earning assets and sizeable high-cost and shorter-tenure fixed deposits, MBSB’s net financing margin (NFM) suffered notable compression amid a higher profit rate environment. The normally lucrative NFM came in at an annualised 2.0% in 1H FY Dec 2023 (three-year average prior to FY Dec 2022: 3.1%).

Although capital generation will be more challenging in view of the pressure on margins and near-term investments in operations, we expect the Group to maintain its capitalisation by balancing dividend demands with growth expectations. MBSB’s and MBSB Bank’s common equity tier-1 capital ratios stood at a solid 18.9% and 16.7%, respectively, as at end-June 2023.

Table 1: MBSB Bank’s issue ratings


Analytical contacts
Chan Yin Huei
(603) 3385 2498
yinhuei@ram.com.my

Sophia Lee
(603) 3385 2619
sophia@ram.com.my

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(603) 3385 2500
sakinah@ram.com.my