Dec 20, 2022 — RAM Ratings has reaffirmed Export-Import Bank of Malaysia Berhad’s (MEXIM or the Bank) respective gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1 financial institution ratings on the global, ASEAN and Malaysian scales. We have also reaffirmed the global-scale gA2(s)/Stable rating of EXIM Sukuk Malaysia Berhad’s USD1.0 bil Multi-Currency Sukuk Issuance Programme. EXIM Sukuk Malaysia is the Bank’s funding conduit.
MEXIM’s ratings are equated to that of the Government of Malaysia, given our view that the Bank remains highly strategic to the latter owing to its mandate to advance the country’s trade agenda and support the outward investments of domestic firms. MEXIM has received solid government backing in the past, as demonstrated by a recapitalisation exercise, funding schemes at preferential rates and the subscription of the Bank’s RM250 mil redeemable convertible cumulative preference shares.
As with other development financial institutions, MEXIM’s weak asset quality is a major shortcoming in view of its exposure to higher-risk credits. Borrower concentration remains a factor while significant cross-border financing adds risks and complexity to the Bank’s operations. Credit risk arising from currency mismatches has been amplified in recent times amid strong USD appreciation as lending is largely denominated in US dollars, whereas many of its borrowers’ operations are conducted in local currencies. As at end-June 2022, the Bank’s gross impaired loans ratio rose to 45.5% (end-December 2020: 41.5%) due to a shrinking loan base, partly resulting from more stringent and selective underwriting. Its credit cost ratio was relatively unchanged at 85 bps in FY Dec 2021 (FY Dec 2020: 84 bps) and is likely to stay elevated this year.
Despite substantial foreign exchange losses and a lower net interest income, pre-tax profit remained at RM51.1 mil in FY Dec 2021 (FY Dec 2020: RM51.2 mil), chiefly because of a significant writeback of provisions on commitment and contingencies and the absence of modification losses. The difficulty in growing its loan book and lingering provisioning risk may weigh on MEXIM’s profitability going forward. Meanwhile, the Bank’s tier-1 capital and total capital ratios stood sound at a respective 28.2% and 44.0% as at end-December 2021 (end-December 2020: 28.0% and 38.8%). While MEXIM’s capitalisation is sensitive to lumpy impairments, we derive comfort from the government’s track record of support for the Bank. — ram.com.my