RAM reaffirms Bank Rakyat rating

PETALING JAYA: RAM Ratings has reaffirmed Bank Kerjasama Rakyat Malaysia Berhad’s (Bank Rakyat) AA2 rating with a stable outlook, after the bank’s chairman Tan Sri Abdul Aziz Zainal and managing director Datuk Mustafha Abd Razak were charged for corruption last September.
In a statement yesterday, the rating agency said concurrently, the ratings of its sukuk, issued through its funding conduits, have also been reaffirmed.
RAM Ratings said the charges against the top management of Bank Rakyat draw its concern as management assessment features as a key part of the rating consideration.
“Notwithstanding this, our view of expected ready support from the government, Bank Rakyat’s strong personal financing franchise and robust loss-absorbing capacity underpin the rating reaffirmation at this juncture,” it explained.
Aziz was charged under Section 109 of the Penal Code with abetment, while Mustafha was charged with criminal breach of trust of the bank’s allocation for marketing expenditure involving RM15 million, under Section 409 of the Penal Code. Both pleaded not guilty to the charges.
RAM Ratings said Bank Rakyat’s asset quality is supported by a sizeable personal financing portfolio that benefits from repayments via non-discretionary salary-deduction/transfer mechanisms but balanced by a weak corporate-financing portfolio.
Its gross impaired-financing (GIF) ratio remained satisfactory at 2.1% as at end-June 2016, but is higher than the 1.9% as at end-December 2015, due to a few corporate borrowers.
Owing to strong recoveries, Bank Rakyat recorded a net impairment write-back in the first half of 2016 even though further provisions on lumpy impaired accounts cannot be ruled out.
As at end-June 2016, its GIF coverage ratio (inclusive of regulatory reserves) stood at a comfortable 108%.
RAM Ratings said Bank Rakyat’s profitability has been tapering off amid keen competition that has eroded its margins over the years. The margin compression is also attributable to Bank Rakyat’s relatively weak deposit franchise.
Bank Rakyat reported a pre-tax profit of RM900 million in the first half of the year with a return on asset of 1.9% on the back of a lucrative net annualised financing margin of 2.9%.