MARC Ratings has affirmed its financial institution (FI) rating of A+ on MBSB Bank Berhad and concurrently affirmed its A+IS rating on MBSB Bank’s RM5.0 billion Sukuk Wakalah programme. The ratings outlook is stable.
MBSB Bank’s sound capitalisation levels and strong support from its ultimate shareholder Employees Provident Fund (EPF) remain key rating drivers. The rating is moderated by MBSB Bank’s weaker-than-industry average asset quality metrics and execution risk arising from the bank’s plan to expand its corporate financing portfolio.
MBSB Bank’s total financing grew by 4.5% y-o-y to RM36.0 billion as at end-June 2022 with the growth mainly stemming from the residential property and working capital segments. We note that its gross impaired financing (GIF) ratio rose to 5.08% (Islamic banking industry average: 1.55%), mainly from the corporate financing segment due to the expiry of relief measures. As at end-1H2022, about 1.9% of total financing were under relief programmes (2021: 50.8%). Additionally, personal financing which remains the bulk of the bank’s financing book at 55.0% also recorded a higher GIF ratio of 1.45% (1H2021: 0.87%). This increase was recorded from the bank’s non-salary deductible personal financing facilities which constituted 10% of the total personal financing amount.
The rating agency is of the view that the bank’s Common Equity Tier 1 and total capital ratios remain sound at 15.2% and 19.8%, providing a buffer against the increases in credit impairments. For 1H2022, MBSB Bank registered lower pre-tax profit of RM284.8 million due to higher impairment charges of RM210.7 million. The bank’s return on assets and return on equity stood at 0.91% and 6.78% during the period.
MBSB Bank’s top 10 depositors accounted for 42.9% of total deposits as at end-1H2022. Concentration risk is mitigated by the fact that these depositors are largely government-related entities which we consider to be stable. EPF as the major shareholder is expected to continue supporting the bank. This has also been evident in the dividend reinvestment scheme that bolstered MBSB Bank’s capital base.
The bank’s holding company, Malaysia Building Society Berhad (MBSB), is currently in the negotiation stage for the proposed acquisition of Permodalan Nasional Berhad’s shareholding in Malaysian Industrial Development Finance Berhad (MIDF). MARC Ratings understands that this will be done via a share swap. The acquisition of MIDF would complement MBSB’s banking operations as it provides an avenue for MBSB to diversify its business operations through MIDF’s capital market activities as well as asset management and stockbroking businesses.