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MBSB (1171): MALAYSIA BUILDING SOCIETY BHD's RM5bil sukuk rated favourably by MARC

KUALA LUMPUR: MARC Ratings has assigned its financial institution (FI) rating of A+ to MBSB Bank Bhd and a preliminary rating of A+IS to the bank's proposed RM5.0 billion sukuk Wakalah programme.

MBSB Bank is a wholly-owned subsidiary of Malaysia Building Society Bhd (MBSB) and was established in February 2018 arising from MBSB's acquisition of Asian Finance Bank, a full- fledged Islamic bank.

According to MARC, MBSB Bank's strength in banking and financing, particularly in personal financing, and a strong capitalisation that had been well supported by its ultimate shareholder the Employees' Provident Fund, were key rating factors.

Concurrently, it said RM41.2 billion worth of Shariah-compliant assets of MBSB were transferred to MBSB Bank.

"The acquisition was mainly prompted by the need for an Islamic banking licence in line with MBSB group's plans to become a full-fledged Islamic FI," it said.

As at end of its nine months of financial year 2021, MBSB Bank's total assets stood at RM49.3 billion, of which financing stood at about RM35.1 billion and financial instruments at about RM12.0 billion.

The rating agency noted that MBSB Bank's financing book mainly comprised personal financing facilities (56.2 per cent) followed by residential property (18.4 per cent) and construction (10.6 per cent).

The bank's personal financing is largely provided to government staff, whose repayment risks are mitigated by salary deduction at source.

In regard to housing financing, MARC said the bank also collaborated with Cagamas Bhd and Lembaga Pembiayaan Perumahan Sektor Awam to achieve a relatively strong position in government-related housing programmes.

Its gross impaired financing (GIF) ratio, which had been trending down in recent years, rose to 3.47 per cent at the end of nine months 2021 (9M21) (2020: 2.88 per cent).

"The rise has been largely attributed to the pandemic-induced impact on the economic sectors, in particular the construction sector," it said.

MARC said the bank's GIF ratio was higher than the domestic Islamic banking industry average of 1.34 per cent;. This was due to legacy impairments that were being addressed through increased recovery efforts and write-offs.

However, it said asset quality could come under pressure when the extended moratorium and other assistance measures end.

"With Common Equity Tier 1 and total capital ratios of 16.7 per cent and 21.4 per cent, MBSB Bank has some buffer to absorb credit impairments. We also note that the EPF's continued support to the bank's capital levels has been forthcoming by way of dividend reinvestments," it added.

For 9M21, the bank's pre-tax profit rebounded to RM530.6 million (2020: RM379.1 million, impacted by modification loss) while return on assets and equity were 1.05 per cent and 7.28 per cent (2020: 0.59 per cent, 4.20 per cent).

MARC said as the bank lacked a wide branch network to support CASA deposits, it was largely reliant on government-owned entities for deposits.

"We expect the EPF, as the major shareholder of MBSB with a 65.4 per cent stake, to provide liquidity support to the bank if the need arises. The bank's liquidity coverage ratio has remained well above Bank Negara Malaysia's requirement, standing at 284.6 per cent as at end- 9M21 (2020: 193.2 per cent)," it added.


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