[RAM] Sarawak government's emergence as AFFIN Bank's new majority shareholder continues to support AA3 financial institution ratings

RAM Ratings does not expect the change in shareholding structure at AFFIN Bank Berhad (AFFIN Bank or the Group) to impact the ratings of entities within the Group (see Table 1). The ratings were last affirmed in May 2024, and considered Sarawak State’s stated intention to acquire a larger stake in the Group, then pending regulatory approval.

On 27 September 2024, AFFIN Bank announced the Sarawak government (through its fully owned subsidiary, SG Assetfin Holdings Sdn Bhd) had entered into an agreement to acquire part of the shares in the Group held by Lembaga Tabung Angkatan Tentera and Boustead Holdings Berhad. The exercise has received approval from Bank Negara Malaysia and is expected to be completed in 4Q 2024. Post-acquisition, the state government will become AFFIN Bank’s largest shareholder, owning approximately 31% of the banking group, up from 4.8% previously. 

Under the new ownership structure, AFFIN Bank’s ratings will continue to reflect an uplift from extraordinary parental support. This is based on our belief that ready support from the Sarawak government will be forthcoming if needed – notwithstanding the presence of two other significant shareholders each holding over 20% stake in the Group. 

RAM views Sarawak, whose state implicit strength is rated AAA, to have a robust credit profile¹. Through this strategic acquisition, the state aims to improve funding access for creditworthy small and medium enterprises (SMEs) as well as corporates across the state as part of a broader strategy to bolster economic development. For AFFIN Bank, this will mean greater opportunities to participate in the state’s growth ambitions. The increased stake could also expand the Group’s funding base through increased deposit inflows.

In the immediate term, AFFIN Bank’s standalone credit profile is envisaged to remain unaffected by recent net interest margin pressures and potential asset quality risks. Its gross impaired loan ratio eased to 1.9% as at end-June 2024 (end-December 2022: 2.0%), largely due to rapid loan growth. Asset quality may see some slippage in the coming quarters, particularly among SMEs and some corporates under Stage 2, but we do not expect widespread vulnerabilities. Still-healthy loss absorption buffers in the form of provision reserves and capitalisation should help mitigate potential credit slippage.

Table 1: Ratings of AFFIN Bank and its banking subsidiaries