MARC Ratings has affirmed its long- and short-term financial institution (FI) ratings of AA+/MARC-1 on Kuwait Finance House (Malaysia) Berhad (KFH Malaysia) with a stable outlook.
KFH Malaysia’s long-term AA+ FI rating is notched down from the AAA FI rating of its 100%-owned parent Kuwait Finance House KSC (KFH) whose FI rating reflects the very high likelihood of support from the Kuwaiti government due to its high systemic importance as the second largest bank in Kuwait with an asset size of KWD21.8 billion (about RM284.5 billion) as at end-2021. MARC Ratings has based KFH’s rating on publicly available information. The rating agency considers KFH Malaysia as a strategic subsidiary of its parent, supported by the explicit intent of support the parent has extended to KFH Malaysia.
In recent years, KFH Malaysia has focused on asset quality management, capital preservation and cost optimisation. The bank’s financing base declined by 10.6% y-o-y to stand at RM4.03 billion as at end-2021. Over the same period, gross impaired financing (GIF) and GIF ratio were also lower at RM272.8 million and 6.8% (end-2020: RM317.4 million, 7.1%). Underpinned by lower provisioning expenses and modifications charges, pre-tax profit grew to RM68.3 million (end-2020: RM2.7 million).
For 1Q2022, pre-tax profit was higher y-o-y at RM16.7 million (1Q2021: RM11.7 million). Over the near term, any upside to profitability will be capped by a declining financing book and increased competitive environment for deposits. KFH Malaysia’s capitalisation levels will continue to provide ample headroom in cushioning further asset quality weakening. As at 1Q2022, KFH Malaysia’s common equity tier 1 and total capital ratio stood at 38.7% and 39.8%. While reliant on short-term customer deposits, KFH Malaysia’s liquidity coverage ratio and net stable funding ratio of 244.3% and 116.2% as at 1Q2022 should continue to provide some headroom against funding volatility.