Posted Date: January 14, 2022

MARC Ratings has assigned its financial institution (FI) rating of A+ to MBSB Bank Berhad and a preliminary rating of A+IS to the bank's proposed RM5.0 billion Sukuk Wakalah programme. The outlook on the ratings is stable.

MBSB Bank's strength in banking and financing, particularly in personal financing, and a strong capitalisation that has been well supported by its ultimate shareholder, Employees' Provident Fund (EPF), are key rating factors.

MBSB Bank is a wholly-owned subsidiary of Malaysia Building Society Berhad (MBSB) and was established in February 2018, arising from MBSB's acquisition of Asian Finance Bank (AFB), a full-fledged Islamic bank. Concurrently, RM41.2 billion worth of Shariah-compliant assets of MBSB were transferred to MBSB Bank. The acquisition was mainly prompted by the need for an Islamic banking licence in line with MBSB group's plans to become a full-fledged Islamic FI.

As at end-9M2021, MBSB Bank's total assets stood at RM49.3 billion, of which financing stood at about RM35.1 billion and financial instruments at about RM12.0 billion. We note that MBSB Bank's financing book mainly comprises personal financing facilities (56.2%) followed by residential property (18.4%) and construction (10.6%). Its personal financing is largely provided to government staff, whose repayment risks are mitigated by salary deduction at source. In regard to housing financing, the bank also collaborates with Cagamas Berhad and Lembaga Pembiayaan Perumahan Sektor Awam to achieve a relatively strong position in government-related housing programmes.

Its gross impaired financing (GIF) ratio, which had been trending down in recent years, rose to 3.47% at end-9M2021 (2020: 2.88%). The rise has been largely attributed to the pandemic-induced impact on the economic sectors, in particular the construction sector. We note that the bank's GIF ratio is higher than the domestic Islamic banking industry average of 1.34%; the bank's higher level is due to legacy impairments that are being addressed through increased recovery efforts and write-offs. However, asset quality could come under pressure when the extended moratorium and other assistance measures end. With Common Equity Tier 1 and total capital ratios of 16.7% and 21.4%, MBSB Bank has some buffer to absorb credit impairments. We also note that EPF's continued support to the bank's capital levels has been forthcoming by way of dividend reinvestments.

For 9M2021, pre-tax profit rebounded to RM530.6 million (2020: RM379.1 million, impacted by modification loss) while return on assets and equity were 1.05% and 7.28% (2020: 0.59%, 4.20%). As the bank lacks a wide branch network to support CASA deposits, it is largely reliant on government-owned entities for deposits. We expect EPF, as the major shareholder of MBSB with a 65.4% stake, to provide liquidity support to the bank if the need arises. The bank's liquidity coverage ratio has remained well above Bank Negara Malaysia's requirement, standing at 284.6% as at end-9M2021 (2020: 193.2%).

Farhan Darham, +603-2717 2945/ farhan@marc.com.my;
Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my;
Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my.

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