[RAM] RAM Ratings affirms Bank Rakyat's AA2/P1 ratings

RAM Ratings has affirmed Bank Kerjasama Rakyat Malaysia Berhad’s (Bank Rakyat or the Bank) AA2/Stable/P1 financial institution ratings (FIRs) as well as the enhanced ratings of the Bank’s sukuk, issued through its funding conduits (see Table 1). The enhanced (s) ratings reflect the Bank’s purchase undertakings to meet its obligations under the sukuk.

Given its status as a cooperative bank-cum-developmental financial institution, the ratings incorporate our expectation of a moderately high likelihood of extraordinary government support. On a stand-alone basis, the Bank’s credit profile remains underpinned by its strong foothold in personal financing (PF) extended to civil servants (estimated PF market share: 30%), its sound profitability and robust loss absorption capacity. Although asset quality slippage may surface in its mortgage and non-retail portfolios, Bank Rakyat’s healthy gross impaired financing (GIF) coverage and sturdy capital position afford it a good buffer against potential credit impairment. 

The Bank’s GIF ratio increased slightly to 2.1% as at end-June 2024 (end-December 2022: 2.0%), mainly because of credit deterioration in its business and home financing portfolios. We believe overall credit quality will remain anchored by the Bank’s large share of PF that is repaid by salary deductions made by apex cooperative, Angkasa (50% of total financing). As at end-September 2024, its GIF coverage (including regulatory reserves) and Basel I Tier-1 capital ratio stayed sturdy at a respective 148.1% and 24.6% (end-December 2022: 189.3% and 23.7%). 

Bank Rakyat has traditionally enjoyed strong profitability but portfolio diversification away from PF and keen competition have eroded margins in the last few years. Its net financing margin narrowed by 51 bps to 2.7% in FY Dec 2023 amid the upward repricing of deposits and intensified deposit competition. Notwithstanding, the Bank’s pre-tax profit was lifted by the net writeback of provisions (FY Dec 2023: -4 bps; 1H FY Dec 2024: -14 bps) as further overlays were released. We expect net impairment charges to gradually normalise starting FY Dec 2025.

With a limited retail deposit franchise and some degree of depositor concentration, Bank Rakyat’s modest funding profile continues to constrain its ratings. The reliance on wholesale funding is, however, partly moderated by the Bank’s strong liquidity coverage and established relationships with its major depositors. 





Analytical contacts
Sean Lim, CFA 
(603) 3385 2550
sean@ram.com.my

Amy Lo
(603) 3385 2509
amy@ram.com.my

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