MARC Ratings has affirmed its financial institution ratings of A+/MARC-1/Stable on Bank Muamalat Malaysia Berhad. The rating agency has concurrently affirmed its ratings on the bank’s Sukuk Wakalah Programme of up to RM5.0 billion as follows:
- Senior Sukuk Wakalah at A+IS /Stable
- Tier-2 Subordinated Sukuk Wakalah at A-IS /Stable
- Additional Tier-1 (AT-1) Sukuk Wakalah at BBBIS /Stable
The ratings reflect the different seniority rankings of the instruments, in line with MARC Ratings’ methodology on notching principles of subordinated and hybrid instruments.
The affirmation reflects the bank’s steady earnings generation as well as healthy asset quality and capitalisation metrics despite its recently high financing growth. The ratings also consider Bank Muamalat’s high reliance on wholesale funding and its relatively modest size in the competitive Islamic banking sector, with around 3.4% and 4.1% market share of gross financing and deposits as at end-June 2024.
Bank Muamalat grew its financing book by around 18% in 2023 and a further 8.0% through June 2024 to RM30.8 billion. Most loan growth continued to come from the retail segment, primarily for housing and personal financing, which made up 62% of the bank’s total financing as at end-June 2024. Gross impaired financing ratio edged up slightly due to financing book seasoning but remained manageable at 1.3% and lower than the Islamic banking industry average of 1.5% as at end-June 2024. Financing loss coverage of about 68% was adequate, given the availability of collateral for some exposures.
The bank’s Common Equity Tier 1 and total capital ratios remained adequate at around 11.0% and 16.8% despite rapid loan growth in the recent past, supported in part by the retention of dividends. Bank Muamalat has available Tier-2 Subordinated Sukuk Wakalah and AT-1 Sukuk Wakalah to strengthen its capitalisation, if needed.
The bank’s funding structure largely depends on wholesale funding, constituting close to 80% of total funding. During 1H2024, its top 10 depositors represented 35% of total deposits. MARC Ratings, however, views liquidity risk arising from the concentrated deposit base as mitigated by the stability of the major depositors (mainly government-related deposits). Additionally, the bank’s liquidity coverage ratio of 158.6% and net stable funding ratio of 108.0% have remained comfortably above minimum regulatory requirements.