This reflects the importance of Maybank Islamic as the group’s Islamic banking arm, its meaningful contribution to Maybank (Maybank Islamic contributed 15% of Maybank’s pre-tax profit and 19.5% of gross financing for the financial year ended December 31, 2012), operational integration and shared branding.
Positive rating drivers include Maybank Islamic’s leading position as the largest Islamic bank in Malaysia, healthy capitalisation, sustainable earnings, and sound liquidity and funding profile. The ratings also factor in the high likelihood of full financial support from the parent/group on a timely basis.
Constraining the ratings are continued margin compression and fierce competition as well as Maybank Islamic’s increased exposure to risks associated with regional expansion.
Maybank Islamic is the largest Islamic bank in Malaysia, with a 26% market share of financing in the domestic market and 23% market share of deposit as at end-2012.
Maybank Islamic’s competitive edge lies in its ability to capitalise on its parent’s infrastructure and distribution network as well as the sharing of a well-established brand name. Maybank Islamic operates across divisions in Maybank Group and gains access to customers through 507 Maybank branches and various distribution channels nationwide.
Maybank Islamic’s gross financing and advances growth moderated marginally to 18% in 2012, which is on par with the industry average.
The gross financing to customer deposit ratio eased slightly to 87.3% as at end-2012 (end-2011: 89.2%) as the rate of deposits growth outpaced financing growth; total deposits rose by 21% to RM71 billion as at end-December 2012.
To counter the pressure on its funding costs stemming from intense competition for deposits, Maybank Islamic is aggressively growing its low-cost current and savings (CASA) deposits.
Its CASA deposits grew by 42% to RM23.5 billion as at end-2012 (end-2011: RM16.6 billion).
Nonetheless, fixed return investment deposits continue to account for the largest proportion of its total customer deposits.
The bank’s liquid asset ratio remained stable at 22.8% as at end-December 2012 (end-December 2011: 23.1%).
Maybank Islamic’s gross impaired financing ratio declined to 0.8% as at end-2012 (end-2011: 1.6%), below the industry average of 1.7%.
The bank’s credit performance continues to be supported by low financing rates and economic growth; newly impaired financings came to RM543.3 million for the full 12 months compared to RM316.6 million for the six-month financial period ended December 31, 2011 (FP2011).
Reclassifications of impaired financing to non-impaired, recoveries and write-offs have brought the bank’s gross impaired financing down to RM520 million from RM812 million at year end-2011.
Maybank Islamic’s past due but not impaired financings rose to RM6.5 billion as at end-2012 (end-2011: RM5.6 billion), or 10.5% of gross financing.
Maybank Islamic’s recently released 2013 first quarter financial results suggests that there was likely an element of year-end seasonality in December 2012 delinquencies; gross impaired financing showed a further decrease of RM2.8 million during the first three months of 2013.
Maybank Islamic’s financing loss allowance continued to provide full coverage of its impaired financing with coverage at 133% as at end-2012 (end-2011: 115%).
MARC views this to be prudent in light of downside risks pertaining to the seasoning impact of more recent credit growth.
Maybank Islamic’s pre-tax profit rose to RM1.2 billion in 2012 from RM953 million in the previous corresponding period largely due to resilient net financing income and higher non-financing incomes and, to a smaller extent, a net write-back in allowances for losses on financing which amounted to RM28 million.
Maybank Islamic’s net financing margin was squeezed by higher funding costs and lower financing rates arising from the increasing competition in the market for financing and deposits; the net financing margin declined to 1.92% in 2012 from 2.42% in FP2011.
Nonetheless, this was moderated by a larger financing base.
Maybank Islamic is expected to sustain its core financial performance; its capacity to generate sustainable earnings should benefit from its steadily growing financing income.
The bank’s return on assets (ROA) continued to be stable at 1.1%, while its return on equity (ROE) increased to 20.5% (2011: ROA: 1.1%; ROE: 19.3%).
Maybank Islamic’s capital levels are healthy with Common Equity Tier 1 (CET1) and risk-weighted capital ratios (RWCR) of 9.8% and 12.2% respectively as at end-March 2013 under BNM’s Basel III framework.
The bank’s subdued growth in its risk-weighted assets in 2012 and the first three months of 2013 have also helped the bank to maintain a good level of capitalisation in relation to its risk profile, in addition to its continuing strong internal capital generation and dividend reinvestment programme. MARC notes that cash dividends of RM221 million were reinvested via a rights issue exercise in April 2012.
MARC also draws additional comfort from the high likelihood of capital support from its parent bank if needed.
In addition to reflecting Maybank’s rating outlook, the stable outlook on Maybank Islamic’s ratings also reflects MARC’s expectation that Maybank Islamic will sustain its strong market position in the domestic Islamic banking industry and remain a core entity of Maybank Group.
Meanwhile, the rating outlook on Maybank incorporates the prospect of continuing substantial competitive challenges in its home market and the risks associated with its continued strong growth appetite.
Se Tho Mun Yi, +603-2082 2263/ firstname.lastname@example.org;
Sharidan Salleh, +603-2082 2254/ email@example.com.
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