[RAM] RAM Ratings affirms Bank Muamalat's A2/Stable/P1 FIR ratings

RAM Ratings has affirmed Bank Muamalat Malaysia Berhad’s (the Bank) A2/Stable/P1 financial institution ratings (FIRs) and the A3/Stable rating of its RM1 billion Subordinated Sukuk Murabahah Programme (2016/2036). The one-notch difference between the long-term FIR and the rating of the subordinated sukuk reflects the subordination of the facility to the Bank’s senior unsecured obligations.

The ratings consider Bank Muamalat’s healthy asset quality, underpinned by a sizeable proportion of personal financing (PF) with salary transfer and deduction arrangements as well as home financing covered by government-guarantee schemes (collectively 32% of total financing). On balance, the Bank’s capitalisation has declined as a result of robust financing growth while its profitability continues to be moderated by high operating costs.  

An initial public offering anticipated to be launched by the Bank in late 2025 is aimed at reducing the shareholding of its major stakeholder, DRB-HICOM Berhad. Post-listing, the Bank’s capitalisation levels will be lifted. Details of the proposed listing are not yet available but we do not foresee any impact to Bank Muamalat’s ratings on a preliminary basis. We will continue to monitor developments closely on this front and provide necessary updates when more information becomes available.

Bank Muamalat’s gross impaired financing (GIF) ratio trended up to 1.1% as at end-March 2024 (end-December 2022: 0.8%), albeit remaining below the banking system’s 1.6%. The deterioration was mainly driven by home financing extended to self-employed customers. A further increase in the ratio is likely from the seasoning effects of the Bank’s rapidly growing financing book (2021-2023 average: +16.2%) but is envisaged to be manageable. New bookings for home financing are largely government-guaranteed, which will mitigate credit losses. GIF coverage without regulatory reserves fell to 78.3% as at end-March 2024 (end-December 2022: 125.5%) given the larger GIF base, which is however well collateralised. As it intends to restore GIF coverage, the Bank anticipates its credit cost ratio to rise from the low 13 bps reported in FY Dec 2023. 

The accelerated growth led to a lower common equity tier-1 capital ratio of 11.4% as at end-March 2024 (including unaudited net profit) (end-December 2022: 12.6%). Measures to optimise risk-weighted asset calculations, along with the proposed listing, are expected to enhance capitalisation ratios in the near to medium term.

In FY Dec 2023, Bank Muamalat’s profit before tax slid 4% to RM296 mil. While an elevated cost structure remains a drag – with a cost-to-income ratio exceeding 57% over the past five years – the Bank’s profitability was also weighed down by acute margin compression (-47 bps to 2.11%). Improved trading and fee income and lighter impairment charges helped alleviate the impact on earnings. Overall, Bank Muamalat posted a lower pre-tax return on risk weighted assets and return on assets of 1.3% and 0.8%, respectively (FY Dec 2022: 1.5% and 1.0%). Earnings may remain under pressure for the year as margins are expected to stay at around current levels. 


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

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

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