MARC Ratings has affirmed its financial institution (FI) rating of AAA on Bank Pertanian Malaysia Berhad (Agrobank). Concurrently, the rating agency has also affirmed its rating of AAAIS on Agrobank’s Islamic Medium-Term Notes Programme. The ratings outlook is stable.
The ratings affirmation is premised on Agrobank’s status as a wholly government-owned development financial institution (DFI) with a mandate to chart the growth and development of Malaysia’s agricultural sector. Agrobank is regulated by Bank Negara Malaysia while its activities are guided by policies set by the Ministry of Agriculture and Food Security. Agrobank continues to benefit from funding support from the government and government-related entities, accounting for about 48.4% of its funding profile as at end-2022.
Agrobank’s financing book grew slower by 3.5% y-o-y to RM14.2 billion in 2022, largely due to a growth contraction of the crops sector. This was offset by the sharper growth of the retail and wholesale trade sector (+14.1% y-o-y) as well as the household sector (+9.0% y-o-y), accounting for 43% of Agrobank’s gross financing. Gross impaired financing (GIF) ratio rose to 7.3% in 2022 (2021: 6.4%). The high GIF is largely reflective of Agrobank’s developmental mandate which exposes the DFI to higher credit risk. GIF could rise going forward as about 26% of its financing portfolio is still under relief measures (2021: 33%), which are expected to be wound down gradually.
Notwithstanding an increase in net financing income to RM726.8 million in 2022 (+11.1% y-o-y), net profit declined slightly to RM105.6 million (2021: RM106.7 million) due in part to higher tax expenses of RM60.9 million incurred during the year; this stemmed from the one-off Cukai Makmur of 33% in 2022. The DFI’s core capital ratio and risk-weighted capital ratio remained strong at 20.5% and 25.0% as at end-2022 and were in line with other domestic DFIs. Despite the strong capitalisation, downside risks remain considering Agrobank’s developmental role. Nevertheless, the rating agency opines that capital support from the government should be forthcoming, if required.