MARC Ratings has assigned long-term/short-term corporate credit ratings of A+/MARC-1 to MBSB Berhad, with a stable outlook.
MBSB’s long-term rating is aligned with the rating of its core wholly-owned banking subsidiary, MBSB Bank (A+/Stable), premised on the fact that MBSB is a non-operating financial holding company with no borrowings and whose performance is closely linked to that of MBSB Bank. The bank accounted for 89% of MBSB’s total assets as at end-June 2024, about 90% of its consolidated revenue, and 100% of the dividends received by the holding company in 2020-2023 (of between RM133 million to RM441 million). The ratings also reflect the demonstrated history of support from the Employees Provident Fund (EPF), which the rating agency expects to continue despite some dilution in EPF’s shareholding level — to 57.5% from 65.8% — from the issuance of new MBSB shares to Permodalan Nasional Berhad (PNB) for the acquisition of Malaysian Industrial Development Finance Berhad (MIDF) in October 2023; PNB currently holds a 12.8% stake in MBSB.
Post-merger, MBSB’s loan/financing book grew 9.0% y-o-y to RM42.0 billion as at end-2023, and to RM43.7 billion as at end-June 2024. MBSB Bank accounted for 94.3% of the enlarged loan book, while MIDF contributed 4.5%. Gross impaired financing (GIF) stood at RM3.07 billion, or 7.02%, as at end-June 2024. Of this, 73% came from MBSB Bank, 17.3% from MBSB (holding company) and 9.6% from MIDF. MBSB’s higher-than-industry-average GIF ratio is attributed to legacy financing. Asset quality metrics are expected to improve over time, supported by stringent requirements for loan origination, a focus on less risky government-linked entities for financing growth, and tightened risk controls and underwriting standards.
In terms of capitalisation, MBSB has maintained adequate and stable capitalisation ratios above the minimum regulatory requirements. As at end-June 2024, Common Equity Tier 1 and total capital ratios stood at 19.1% and 23.0%, providing adequate protection against possible adverse situations. Current Account and Savings Account (CASA) made up 8.3% of the group’s customer deposits as at end-June 2024; this is considered low relative to the Islamic banking sector average of 28% and is attributable to its moderate-size franchise, resulting in the reliance on pricier wholesale funding. This stood at 71% of total funding as at end-June 2024. The rating agency views that as these deposits are largely from government-related entities, they are relatively sticky and should support stability. The group, specifically MBSB Bank, also has ready access to long-term financing through its RM5.0 billion Sustainability Sukuk Wakalah Programme and RM10.0 billion Sukuk Wakalah Programme. High liquidity coverage ratio at the bank level helps mitigate funding concentration.
MARC Ratings views that the recent changes in senior leadership, comprising professionals with expertise gained from experience in leading positions in key local financial institutions, would strengthen MBSB’s franchise going forward. Under its recently unveiled three-year strategic plan, FLIGHT26 (2024-2026), MBSB will focus on net shareholder value creation and cost efficiency. It will aim for a return on equity of 8%, an increase in CASA in the funding mix to 20%, and a cost-to-income ratio of 50%, among other goals.