MARC Ratings has assigned corporate credit ratings of A+/MARC-1 to Malaysian Industrial Development Finance Berhad (MIDF). Concurrently, MIDF’s wholly-owned subsidiary, MIDF Amanah Investment Bank Berhad (MAIB), has been accorded financial institution ratings of A+/MARC-1. MAIB is highly integrated with MIDF and is the core subsidiary of the group, accounting for about 90% of the group’s total assets and two-thirds of its revenue. As such, MAIB’s ratings are aligned with MIDF’s which, in turn, are aligned to those of parent MBSB Berhad (A+/MARC-1). The outlook on all ratings is stable.

In October 2023, MBSB Berhad completed its 100% acquisition of MIDF from Permodalan Nasional Berhad (PNB) through a share swap that culminated in PNB and the Employees Provident Fund owning 12.8% and 57.5% of MBSB. In MARC Ratings’ view, the MIDF group entities are important subsidiaries to the larger MBSB group’s universal banking business model and strategy. The rating agency has therefore assigned a group rating based on MBSB’s consolidated credit profile. MIDF’s development finance, investment banking, and asset management activities will complement MBSB’s commercial banking operations, and vice versa. The rating equalisation reflects MARC Ratings’ view of a high probability of support from MBSB to MIDF, if needed, given the strong strategic and operational linkages between entities within the MBSB group. While there are integration and execution risks, MARC Ratings expects these to be partially mitigated by the group’s management’s significant experience in the banking sector.

As at end-June 2024, MIDF’s financing portfolio comprised mainly share margin financing (55% of total financing of around RM2.0 billion), syndicated term financing (20%) and bridging facilities (17%) under MAIB. As at end-1H2024, gross impaired financing (GIF) accounted for 15.1% of gross financing; MARC Ratings notes that this is largely due to legacy GIF issues (for around 51% of total GIF, which are well-collateralised). MIDF’s financing portfolio constituted only about 25% of its assets whereas financial investments — primarily government and quality bonds/sukuk rated AA- and higher — formed the bulk of the remaining assets.

Investment banking accounted for close to 80% of MIDF’s income in 1H2024. While earnings performance can be volatile and sensitive to capital market movement, MARC Ratings assesses MIDF to have adequate capital and liquidity buffers to navigate market volatility and potential credit losses. Support from MIDF’s development financing could translate into a more stable earnings profile over the longer term. Meanwhile, MIDF is largely short-term wholesale-funded that also results in deposit concentration. However, deposits have been stable historically, underpinned by the longstanding relationships the group has with depositors, most of whom are government-linked entities (representing around half of deposits).