MARC Ratings has affirmed its financial institution ratings of AA-/MARC-1 on KAF Investment Bank Berhad (KAF IB) with a stable outlook.

KAF IB’s consistent earnings record, strong capitalisation and liquidity, and conservative, low-risk investment strategy remain key rating drivers, moderated by its sensitivity to sudden interest rate changes.

KAF IB primarily earns from capital gains and interest income from its investments and trading activities in fixed-income securities. As of June 2025, approximately 85% of these securities were government-issued, underscoring a focus on highly liquid, low-credit-risk assets. Nevertheless, the bank’s high interest rate sensitivity exposes it to tail risk from abrupt or atypical interest rate movements.

KAF IB’s exposure to short-term wholesale funding is mitigated by its strong liquidity position, underpinned by a high-quality liquid asset base consisting primarily of government securities. The bank’s liquidity metrics remained robust, with a Liquidity Coverage Ratio of 150.2% and Net Stable Funding Ratio of 213.0%, both well above regulatory minimums. As of end-June 2025, capitalisation was sound, with Common Equity Tier 1, Tier 1, and total capital ratios of 106.2%, 106.2%, and 106.7%.

KAF Digital Bank, KAF IB’s digital banking subsidiary, commenced operations on 8 August 2025. The rating agency expects KAF IB’s credit risk profile to remain broadly unchanged in the near to medium term following the launch.

The bank reported higher pre-tax profit of RM102.3 million in FY2025 (FY2024: RM89.2 million). Overheads have risen in recent years mainly due to digital bank setup costs, raising the cost-to-income ratio to 63.6% in FY2025 (FY2024: 57.5%). The expenses associated with the digital bank’s early stage are expected to remain manageable within KAF IB’s earnings capacity.