Monday, November 21, 2011

RAM Ratings reaffirms Bank Islam's A1/P1 ratings

KUALA LUMPUR (Nov 21): RAM Ratings has reaffirmed the A1/P1 financial institution ratings of Bank Islam Malaysia Bhd with a stable outlook.

The agency said on Monday that ratings reflect the backing of Lembaga Tabung Haji, Malaysia's hajj pilgrims' funds board and the Bank's ultimate controlling shareholder, in the form of capital support and the stability of its deposits.

The ratings also consider Bank Islam's liquid balance sheet and sizeable proportion of low-cost deposits, it said.

'While Bank Islam is the third-largest commercial Islamic bank in Malaysia by assets, its franchise is still limited relative to the universal-banking groups,' it said.

RAM Ratings said Bank Islam had demonstrated firmer foundations for business growth, adding that the bank's gross financing portfolio expanded an annualised 10% in the 18-month period ended Dec 31, 2010, its strongest growth in the last 5 fiscal periods.

Write-offs on impaired financing had caused the bank's annualised credit-cost ratio to remain at a lofty 1.2% in 18M December 2010, while its gross impaired-financing ratio had eased to 4.5%. In the first 6 months of 2011, Bank Islam's credit-cost ratio moderated to an annualised 0.3%, it said.

Meanwhile, the bank's gross impaired-financing ratio was 4.2% as at end-June 2011 (Malaysian banking industry average: 2.9%), it said.

RAM Ratings said Bank Islam's profitability had improved, supported by a sizeable high-yielding personal financing portfolio, a large base of low-cost deposits, and lower credit costs.

The bank had a very conservative funding and liquidity profile, it said.

Although its financing-to-deposits ratio of 53% as at end-June 2011 is exceptionally low, this is expected to increase to more optimal levels, it said.

'Meanwhile, Bank Islam's capitalisation position is deemed sturdy, with respective tier-1 and overall risk-weighted capital-adequacy ratios of 16.5% and 15.3% as at end-June 2011.

'Considering the Bank's growth plans and measures to realign its balance sheet (which include increasing the proportion of secured financing), its capital base is expected to be able to adequately support its organic growth over the medium term,' it said.

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