Friday, June 4, 2010

RAM Ratings reaffirms Aeon Credit?s RM400m debt notes

KUALA LUMPUR: RAM Rating Services Bhd has reaffirmed the enhanced long-term rating of AA1(bg) for AEON CREDIT SERVICE (M) BHD []'s RM400 million debt notes with a stable outlook.

It said on Wednesday, June 2 the enhanced long-term rating of the company's conventional and Islamic commercial papers/medium-term notes (CP/MTN) programme, reflects the strength of the unconditional and irrevocable guarantee extended by three banks.

The banks are Bank of Tokyo Mitsubishi UFJ Ltd, Mizuho Corporate Bank Ltd, and MALAYAN BANKING BHD [], based on the weakest-link approach. At the same time, the short-term rating of the conventional and Islamic CP/MTN programme was also reaffirmed at P1.

RAM Ratings said Aeon Credit provides easy-payment schemes and personal financing as well as the issuance of credit cards. It is one of the largest non-bank players in the Malaysian consumer-financing industry; it is estimated to capture the biggest share of the domestic motorcycle-financing market.

Meanwhile, Aeon Credit Service Co Ltd of Japan - through its 56.7%-interest in AEON Credit - continues to play a crucial role in the Company's business direction and strategies.

"Aeon Credit's lending exposure to the low-to-medium-income segment, although through a vast base of customers with small loan amounts, exposes the company to relatively higher credit risk," it said.

This was based on the comparison with commercial banks as the debt-servicing capabilities of the individuals were often more susceptible to adverse changes in economic conditions.

Amid the recent recession, the ratios of both the company's newly classified non-performing loans (NPLs) and loan-loss expenses against its average gross loans inched up to 5.4% as at end-FY Feb 2010 (end-FY Feb 2009: 4.1% and 4.3%).

"That said, Aeon Credit's lucrative net interest margin of 18.7% in FY Feb 2010 provides a strong buffer to absorb credit costs (FY Feb 2009: 19.6%). Overall, the Company's asset quality is still deemed healthy, albeit slightly weaker in FY Feb 2010. Going forward, Aeon Credit's rate of NPL formation is anticipated to moderate as the economic recovery gains traction," it said.


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