Wednesday, July 21, 2010

RAM Ratings upgrades Bank Rakyat?s financial institution rating

KUALA LUMPUR: RAM Rating Services Bhd has upgraded Bank Kerjasama Rakyat Malaysia Bhd's long-term financial institution rating, from AA3 to AA2, with a stable outlook.

RAM Ratings said on Tuesday, July 21 the rating upgrade is premised on the clear improvement in Bank Rakyat's asset quality and its commendable profit performance. Meanwhile, the short-term rating has been reaffirmed at P1. ''

Bank Rakyat's asset quality and profitability indicators have improved considerably in the past 5 years. On a 3-month classification basis, the Group's gross non-performing-financing ratio had halved to 5.4% as at end-March 2010, from a high of about 11% as at end-December 2006.

The Group achieved a record pre-tax profit of RM1.6 billion in FY Dec 2009, supported by a broad net financing margin and a rapidly expanding financing portfolio. Meanwhile, its annualised return on assets and return on equity came up to a strong 3.1% and 29.8%, respectively, as at end-March 2010.

'While its funding and liquidity positions are weaker than its peers', this is expected to improve with the Group starting to diversify its funding base through the inter-bank market as well as the issuance of negotiable instruments of deposits,' comments Promod Dass, RAM Ratings' Head of Financial Institution Ratings.

"At the same time, Bank Negara Malaysia's approval vis-''-vis offering current-account products promote further expansion in the Group's deposit products offering. As at end-March 2010, Bank Rakyat's financing-to-deposits ratio stood at a high 96.7% (end-December 2008: 92.7%).

Moving forward, Bank Rakyat is expected to retain its dominant position despite heightened competition in its core business of extending financing facilities to civil servants.

In this respect, RAM Ratings notes the recent guidelines issued by Suruhanjaya Koperasi Malaysia, which discourage cooperatives from acting as agents of commercial banks vis-''-vis the provision of personal financing to cooperative members.

Amid the environment of rising interest rates this year, Bank Rakyat's net financing margin is anticipated to come under pressure as its financing assets primarily comprise fixed-rate facilities.

Nonetheless, the Group's profitability indicators are still expected to outperform those of its industry peers. Underpinned by the implementation of an internal plan to beef up its risk management, asset and liability management, and competitive edge, the improvements in Bank Rakyat's credit profile are expected to be sustainable.

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