MARC Ratings has affirmed its financial institution rating on Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank) at AAA, and its ratings on the bank’s existing Islamic Medium-Term Notes/ Islamic Commercial Papers Programmes (with a combined limit of RM3.0 billion) at AAAIS/MARC-1IS. The outlook on the ratings is stable.
The affirmation reflects SME Bank’s strategic importance as a development financial institution (DFI) mandated to support the growth of small and medium enterprises (SMEs) in the country. Effective 1 May 2025, SME Bank became a subsidiary of Bank Pembangunan Malaysia Berhad (BPMB), a wholly government-owned entity, forming part of the enlarged BPMB group. The bank’s relatively stable funding profile is anchored by government and government-related funding, which represented 50.9% of total funding as of 1H2025. Post-merger, SME Bank’s mandate remains unchanged, reinforcing expectations of support from BPMB and the government.
At SME Bank group level, its financing portfolio grew by 5.2% to RM9.6 billion in 2024 and further to RM9.7 billion as of 1H2025. It inherently assumes higher credit risk given its developmental mandate. The group’s gross impaired financing ratio improved to 13.6% as of 1H2025 (2023: 14.7%) on the back of financing growth. At the standalone bank level, the ratio stood lower at 11.9% (2023: 12.5%). Nonetheless, asset quality pressures remain amid evolving domestic and global economic conditions.
Pre-tax profit rose to RM109.9 million in 2024 (2023: RM75.3 million), driven by lower impairment charges on financing. For 1H2025, SME Bank’s pre-tax profit increased by 26.4% to RM40.2 million (1H2024: RM31.8 million).
SME Bank’s capitalisation has improved, with the core capital and risk-weighted capital ratios at 13.9% and 21.7% as of 1H2025 (2023: 12.1% and 18.4%). Despite this, the bank remains below its DFI peers in terms of capital levels. MARC Ratings views SME Bank’s capital buffers as moderate in the context of its risk profile. Nonetheless, the enlarged capital base of BPMB group could provide a stronger footing for SME Bank’s mandate-driven activities, while government support is assessed as highly likely, if needed.