[RAM] RAM Ratings affirms AFFIN Group's AA3 financial institution ratings

RAM Ratings has affirmed the AA₃/Stable/P1 financial institution ratings of AFFIN Bank Berhad (AFFIN Bank or the Group) and its banking subsidiaries, AFFIN Islamic Bank Berhad (AFFIN Islamic) and Affin Hwang Investment Bank Berhad (Affin Hwang). The existing issue ratings of these entities have concurrently been affirmed. 

Following the Sarawak state government’s acquisition of shares in AFFIN Bank held by Boustead Holdings Berhad and Lembaga Tabung Angkatan Tentera (LTAT), it now holds a 31.25% stake, making it the Group’s largest shareholder. LTAT’s combined direct and indirect interest has decreased to 22.0% from 48.8% previously. Under the new ownership structure, AFFIN Bank’s ratings will continue to benefit from extraordinary parental support based on our belief that the Sarawak government will provide ready support if needed.

The Group’s gross impaired loan ratio improved marginally to 1.8% as at end-March 2025 (end-December 2023: 1.9%), partly aided by an expanded loan base, write-offs and recoveries. The proportion of Stage 2 loans and bonds declined to 5.1% (end-December 2023: 7.1%) on the back of rigorous collection efforts. That said, we remain cautious of further seasoning effects from AFFIN Bank’s rapidly growing loan book, which has seen an average growth of 11.9% over the last three years. 

On a positive note, the Group’s exposure to customers with direct exports to the US is limited, estimated at just 3.6% of its loan portfolio (or RM2.6 bil). While global tariff tensions are likely to have broader implications for the macroeconomy, potential credit deterioration in AFFIN Bank’s portfolio is expected to be manageable. A healthy common equity tier-1 capital ratio of 13.5% (end-December 2023: 13.6%, without transitional arrangements) and loan loss coverage (including regulatory reserves) of 124.5% as at end-March 2025 provide sufficient headroom to absorb potential credit weakening.

AFFIN Bank’s profitability and funding metrics remain moderating factors for its rating. The Group’s elevated cost structure due to IT spending and branch network expansion remains a drag on profitability. Additionally, its net interest margin remained narrow at 1.35% in FY Dec 2024 (FY Dec 2023: 1.37%) and further squeezed to 1.32% in 1Q FY Dec 2025. Although the Group has made meaningful progress in strengthening its deposit gathering capabilities, with the share of current and savings account deposits rising to 32.2% as at end-March 2025 (end-December 2019: 19.1%; industry: 33.7%), the cost of funding stayed high. Going forward, the Group’s deposit base is expected to benefit from placements from the Sarawak government and state-related entities.



 

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