MARC Ratings has affirmed its financial institution (FI) rating of AAA on Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank). Concurrently, the rating agency has affirmed its ratings of AAAIS/MARC-1IS on the bank’s Islamic Medium Term-Notes (IMTN) Programme of up to RM3.0 billion and Islamic Commercial Papers (ICP) Programme of up to RM1.0 billion with a combined aggregate limit in nominal value of up to RM3.0 billion. The ratings outlook is stable.
The affirmed ratings are driven by SME Bank’s status as a wholly government-owned development financial institution (DFI) with a mandate to develop small and medium enterprises (SMEs). Regulated by Bank Negara Malaysia (BNM) and supervised by Kementerian Pembangunan Usahawan dan Koperasi (KUSKOP), SME Bank has remained a key player in the development of SMEs in Malaysia.
As at end-2021, SME Bank’s financing portfolio recorded a growth rate of 7.5% y-o-y to stand at RM8.3 billion. Growth was aided by the DFI’s continued role as a conduit to channel the government’s stimulus facilities to those impacted by the pandemic. Continued accommodative relief measures coupled with financing portfolio expansion has led to a slight downtick in the DFI’s gross impaired financing (GIF) ratio of 18.4% as at end-2021 (end-2020: 20.5%). At the bank level, GIF ratio stood lower at 14.3% (end-2020: 16.0%). The double-digit impairment levels remained well above the SME industry’s average of 3.2%, in part due to its developmental role in supporting the growth of SMEs which entails higher risk. MARC Ratings notes that SME Bank continues to maintain an accommodative stance, offering rescheduling and restructuring programmes to its customers in managing asset quality levels.
The DFI’s core capital ratio and risk-weighted capital ratio remained sound at 12.9% and 19.2% as at end-2021 (2020: 12.6%, 18.9%). While downside risk on capital persists in view of its developmental role, we opine that capital support from the government would be forthcoming if required. In terms of funding, SME Bank continued to benefit from funding support from the government as well as BNM. As at end-2021, 71.8% of its total funding were sourced by way of deposits, borrowings and grants from the government and government-related entities as well as by government-guaranteed sukuk issuances.