[RAM] RAM Ratings affirms AA3 and A1 ratings of AEON Credit's Senior and Subordinated Sukuk Wakalah Programme

RAM Ratings has affirmed respective AA₃/Stable and A₁/Stable ratings to Senior and Subordinated Sukuk under AEON Credit Service (M) Berhad’s (AEON Credit or the Group) RM5 bil Sukuk Wakalah Programme as well as the P1 rating of its RM1 bil Islamic Commercial Papers Programme. 

The affirmations reflect AEON Credit’s presence in the domestic consumer lending space, sustained resilience in asset quality and profitability, despite its sizeable exposure to non-prime borrowers and moderate gearing level. The ratings also factor in our expectations of a ‘high likelihood’ of extraordinary support from AEON Co., Ltd, the Group’s ultimate parent – a prominent Japan-based retail and financial services group. AEON Credit, together with its sister retail company - AEON CO. (M) BHD., represent the AEON group’s strategic presence in Malaysia.

As at end-February 2025, the Group’s gross impaired financing (GIF) ratio held steady at 2.6% as an increase in GIF was offset by a larger receivables base. The GIF uptick was primarily due to new-to-credit, lower-income and younger borrowers. The management expects the asset quality deterioration within these segments to be contained, as credit tightening measures implemented since last year are anticipated to progressively yield results. The Group targets to reduce the GIF ratio to below 2.5% by end-February 2026. AEON Credit’s GIF coverage stayed robust at 208.6% as at end-February 2025 (end-February 2024: 221.3%), affording a strong loss absorption buffer.

Despite a 15.4% growth in receivables and a wider net interest margin, AEON Credit's pre-tax profit declined to RM513.5 mil in FY Feb 2025 (FY Feb 2024: RM565.2 mil), mainly due to higher net impairment charges (+RM123.7 mil) and other operating expenses (+RM97.6 mil) coupled with the Group’s share of losses in the newly launched digital bank – AEON Bank (M) Berhad (AEON Bank) (+RM51.8 mil). Nevertheless, lucrative net interest margins (averaging 11.9% over the past three years) provide ample capacity to absorb the Group’s relatively high credit costs (three-year average: 3.3%). While AEON Bank is projected to continue incurring losses, with breakeven targeted within five years of commencing operations, we expect the overall financial impact on the Group to remain manageable.

AEON Credit’s dependence on wholesale funding is a notable disadvantage when compared to deposit-taking institutions. However, debt maturities are well spread out while cash balances and unutilised credit facilities were sufficient to cover short-term borrowings as at end-February 2025. Gearing (adjusted for fair value of hedging reserves) stood at 3.8 times from 3.6 times a year ago.


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Chew Wei Li
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weili@ram.com.my

Jeremy Noel Paul
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