MARC Ratings has affirmed its financial institution rating on Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank) at AAA. The rating agency has also affirmed its AAAIS/MARC-1IS ratings on the bank’s existing Islamic Medium-Term Notes Programme/ Islamic Commercial Papers Programme with a combined limit of RM3.0 billion. The rating outlook is stable.
The affirmation reflects MARC Ratings’ assessment of SME Bank’s strategic importance as a development financial institution (DFI) based on the government’s full ownership of the bank, and SME Bank’s mandated role as the government’s developmental arm to support the growth of small and medium enterprises (SMEs) in the country. The bank is regulated by Bank Negara Malaysia and supervised by Kementerian Pembangunan Usahawan dan Koperasi, underscoring its key role. SME Bank benefits from a relatively stable funding profile that is anchored by the continuing funding support from government and government-related deposits, which represented 52.1% of the bank’s total funding as at end-2023.
SME Bank’s financing portfolio grew by 5.1% y-o-y to RM9.1 billion in 2023, with increased lending to the transportation, storage and communications (+16.3%) and construction (+12.4%) segments being the major contributor. Its gross impaired financing ratio, at 14.7% as at end-2023, remained high, despite moderating (end-2022: 16.9%). Risks to asset quality remain given the bank’s exposure to the inherently riskier SME financing.
In terms of capitalisation, MARC Ratings views SME Bank’s capital buffers as moderate in the context of its risk profile; its core capital ratio and risk-weighted capital ratio stood at 12.1% and 18.4% as at end-2023. MARC Ratings views that government support for capital would be forthcoming, if required. The rating agency also notes that the proposed merger between Bank Pembangunan Malaysia Berhad, SME Bank and Export-Import Bank of Malaysia Berhad is still in progress. MARC Ratings will continue to monitor developments on the merger that is expected to further streamline the role of DFIs in the country.