[RAM] RAM Ratings affirms Export-Import Bank of Malaysia's AAA/P1 ratings

RAM Ratings has affirmed Export-Import Bank of Malaysia Berhad’s (MEXIM or the Bank) AAA/Stable/P1 financial institution ratings (FIRs). We have also affirmed an AAA(s)/Stable rating of EXIM Sukuk Malaysia Berhad’s (EXIM Sukuk) USD1.0 bil Multi-Currency Sukuk Issuance Programme (Sukuk Programme). Concurrently, we have withdrawn the Sukuk Programme’s gA2/Stable rating as we no longer provide public coverage of this rating. EXIM Sukuk is the Bank’s funding conduit. 

MEXIM’s ratings are equated to that of the Government of Malaysia, as the Bank is considered highly strategic to the latter owing to its mandate to advance the country’s trade agenda and support domestic firms’ outward investments. This is demonstrated by the tangible support provided in various forms in the past, including a recapitalisation exercise, funding schemes at preferential rates and subscription of the Bank’s RM250 mil redeemable convertible cumulative preference shares. The ongoing merger of MEXIM, Bank Pembangunan Malaysia Berhad and Small Medium Enterprise Development Bank Malaysia Berhad will not affect the Sukuk Programme’s rating as we believe that its development mandate will remain intact and expected government extraordinary support, if required, to remain forthcoming. This merger is part of a restructuring of the development financial institution (DFI) sector which is currently in its second phase. 

Typical of DFIs, MEXIM’s asset quality is weak due to its higher-risk borrowers. Large borrower concentration continues to be a concern particularly in view of its balance sheet size, while substantial cross-border financing introduces additional risks and operational complexities. Appreciation of the USD, the currency in which most of MEXIM's loans are issued, has heightened credit risk, as many borrowers operate in local currencies, leading to currency mismatches. The Bank’s gross impaired loan ratio remained elevated at 45.6% in end-June 2024 (end-December 2022: 42.5%). 

Despite higher interest expense due to unfavorable hedging positions, MEXIM registered a pre-tax profit of RM37 mil in FY Dec 2023 (FY Dec 2022: RM61 mil pre-tax loss) on account of significant writeback of provisions and lower new impairments. Difficulties in growing its loan book coupled with lingering provisioning risk may constrain MEXIM’s profitability going forward. The Bank’s Basel I tier-1 capital and total capital ratios stood sound and steady at a respective 29.6% and 39.0% as at end-December 2023. While MEXIM’s capitalisation is sensitive to lumpy impairments, the government’s track record of supporting the Bank anchors our comfort.

 

Analytical contacts
Lee Cheng En
(603) 3385 2506
chengen@ram.com.my

Loh Kit Yoong
(603) 3385 2493
kityoongce@ram.com.my

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