RAM Ratings reaffirms Bank Rakyat’s AA2/P1 ratings

KUALA LUMPUR: RAM Ratings has reaffirmed Bank Kerjasama Rakyat Malaysia Bhd’s (Bank Rakyat) respective long- and short-term financial institution ratings at AA2 and P1 with a stable outlook.

In a statement Friday, Aug 19, the rating agency said the ratings reflect Bank Rakyat’s robust profitability, underpinned by its dominant market share in personal financing facilities for civil servants and access to salary deductions administered by Biro Perkhidmatan Angkasa (ANGKASA).

As the salary deductions are non-discretionary from the borrower’s perspective, the repayment profiles of these personal financing facilities are considerably better, it said.

“The ratings also reflect Bank Rakyat’s position as a leading cooperative bank and its role as a developmental financial institution.

“On the other hand, the ratings recognise concentration risks in the Bank’s depositor and financing base,” it said.

RAM Ratings said that Bank Rakyat’s asset-quality indicators remain sound, adding that despite a higher credit-cost ratio of 1.8% at end-December 2010, the bank’s gross impaired-financing ratio had eased to 3.4% (end-March 2010: 5.4%).

Its heftier credit costs primarily relate to further provisions and write-offs on Bank Rakyat’s commercial financing, as well as more conservative provisioning on its personal financing portfolio, it said.

“Despite narrower financing margins, higher credit costs and impairments on its securities holdings, Bank Rakyat’s pre-tax profit went up 11% year-on-year to RM1.7 billion in FY Dec 2010, buoyed by strong financing growth and a corresponding increase in net financing income.

“While intense competition and further upward rate movements are expected to exert pressure on margins, the bank’s net financing margins are still envisaged to be kept sizeable at above 5%,” it said.

RAM Ratings said that with a 10% deposit growth in 1Q FY Dec 2011 adding to the 26% surge in deposits in the 2010 fiscal year, Bank Rakyat’s financing-to-deposits ratio had eased to 87% by end-March 2011 (end-December 2009: 98%).

“Moving forward, Bank Rakyat intends to progressively increase its paid-up capital to RM3 billion (+RM1 billion) by end-December 2011; the Bank is expected to close the year with healthy tier-1 and overall risk-weighted capital-adequacy ratios (RWCARs) of at least 13% and 14.5%, respectively (end-December 2010: 11% and 12.5%),” it said.