Posted Date: August 12, 2021

MARC has assigned its financial institution (FI) rating of AAA to Bank Pertanian Malaysia Berhad (Agrobank). Concurrently, the rating agency has assigned a preliminary rating of AAAIS to the bank's proposed RM1.0 billion Islamic Medium-Term Notes Programme (IMTN Programme). The ratings outlook is stable.

The FI rating reflect Agrobank's status as a wholly government-owned development financial institution (DFI) to which government support has continued to be forthcoming, by way of government grants and financing scheme funds at favourable rates, as well as deposits from government entities. Agrobank is mandated to chart the growth and development of Malaysia's agriculture sector. The DFI is also regulated by Bank Negara Malaysia (BNM), and its financing activities are guided by policies set by the Ministry of Agriculture and Food Industries.

Agrobank has been assisting the government in supporting Small-Medium Enterprises (SMEs) affected by the COVID-19 pandemic. This includes channelling working capital financing to SME's under BNM's RM5.0 billion Stimulus Package 2020, which spurred Agrobank's financing growth by 11.8% y-o-y to RM13.2 billion as at end-2020.

Its gross impaired financing (GIF) has been on an upward trend, increasing to RM866.7 million as at end-2020, leading to higher GIF ratio of 6.6% (2019: 4.3%). GIF ratio however has remained lower compared to other DFIs. Net profit fell to RM27.9 million as at end-2020 (2019: RM148.5 million), largely due to higher provisions of RM208.4 million.

Agrobank's risk-bearing capacity is deemed strong as reflected by its core capital ratio and risk-weighted capital ratio of 20.7% and 24.7% as at end-2020, which mainly comprised paid-up share capital and reserves. Its current capitalisation level provides some buffer to withstand asset quality weakening.

The DFI continues to benefit from funding support from the government as well as other public entities. As of end-2020, deposits from the government or related entities constituted 30.4% of the DFI's funding by way of deposits from entities such as Employees Provident Fund, EXIM Bank of Malaysia and Lembaga Pembiayaan Perumahan Sektor Awam. Meanwhile, financing scheme funds and direct grants from the government or BNM accounted for 21.1% of total funding for the same period.

Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my;
Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my.