[RAM] RAM Ratings assigns first-time rating of A3 to Koperasi Co-opbank Pertama Malaysia

RAM Ratings has assigned financial institution ratings of A3/Stable/P2 to Koperasi Co-opbank Pertama Malaysia Berhad (CBP or the Group). 

The rating benefits from an uplift, incorporating our expectations of a “moderate” level of government support in times of need, premised on the Group’s status as the second largest cooperative bank and one of the five premier cooperatives in the country. Having commenced operations in 1950, CBP received recognition from Suruhanjaya Koperasi Malaysia (SKM, Malaysia Cooperative Societies Commission) to operate as a cooperative bank in 2014. We also note that a third of its board members are appointees of SKM. While not directly governed by Bank Negara Malaysia, the central bank imposed prudential ratios on the Group’s capitalisation, provisioning coverage, funding and liquidity when it started deposit-taking activities in 2014.

About 85% of CBP’s portfolio comprises personal financing, with the bulk of it extended to civil servants with repayments made through salary deductions administered by Biro Perkhidmatan Angkasa. With these financing serviced through non-discretionary salary deductions, CBP’s gross impaired financing (GIF) ratio was a healthy 1.6% as of end-December 2023. Even with the aggressive growth in the last few years, we do not expect it to deteriorate substantially from this level, notwithstanding the lack of seasoning for part of its portfolio. 

CBP’s financing portfolio more than doubled to RM6.7 bil over the four-year period up to end-December 2023 (end-December 2019: RM3.0 bil), mainly underpinned by salary-deducted personal financing facilities and Ar Rahnu financing. The financing share of Ar Rahnu this segment, while modest at 7%, is gradually expanding. The Group undertook a major revamp of its risk management practices over the last two years, tightening underwriting criteria (particularly for non-retail portfolio) and enhanced its collection and recovery procedures. Robust GIF coverage of 129% and a sturdy tier-1 capital ratio of 17% as at end-December 2023 further afford a good buffer against any credit losses. 

Key factors moderating CBP’s ratings include its small franchise in the financial services sector, relatively weaker funding capabilities and moderate profitability. Despite rapid expansion, CBP is still a small player in the personal financing segment with an estimated market share of 3%. Additionally, the Group is heavily reliant on wholesale deposits and its proportion of low-cost savings account deposits is low, hovering around 2%-3%. Nonetheless, its long-standing relationships with large wholesale depositors – typically government and government-related entities – and the regulatory required minimum liquid asset ratio of 25% and financing to deposit ratio of below 100% reduce funding and liquidity risks by ensuring a sound funding and liquidity position. On the profitability front, CBP reported a pre-tax return on assets and return on risk-weighted assets of 1.3% and 1.8%, respectively, in FY Dec 2023. Margin compression and rising cost-to-income ratios have put some pressure on earnings over the last few years.


Analytical contacts
Wong Yin Ching, CFA
(603) 3385 2555
yinching@ram.com.my

Johan Faizul
(603) 3385 2518
johan@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my