[RAM] RAM Ratings upgrades MBSB Bank's Tranche 2 Structured Covered Sukuk to AAA, reaffirms Tranche 3 and 4 ratings

RAM Ratings has upgraded to AAA from AA1 the rating of the Tranche 2 Structured Covered Sukuk issued under MBSB Bank Berhad’s (MBSB Bank or the Bank) RM2,295 mil Structured Covered Sukuk Murabahah Programme. Concurrently, we have reaffirmed the AA1 ratings of the Bank’s Tranche 3 and 4 Structured Covered Sukuk. All the ratings carry a stable outlook. The Structured Covered Sukuk is a dual-recourse instrument with direct recourse to MBSB Bank as a senior unsecured obligation, and a second recourse to the Tranche Cover Assets through a guarantee mechanism provided by the guarantor, Jana Kapital Sdn Bhd (SPV). The Tranche Cover Assets are made up of personal financing (PF) facilities provided to civil servants, originated by the Bank.


The upgrade of the Tranche 2 Sukuk rating reflects its fully cash-collateralised position under the second recourse. As at end-April 2022, accumulated cash balances in the designated accounts of Tranche 2 were more than sufficient to meet outstanding principal and remaining scheduled profit payments under the sukuk. The issuer’s ability to meet obligations under Tranche 2 in the event of the Bank’s default is no longer dependent on future collections of the Tranche Cover Assets. The issue rating is therefore no longer constrained by the number of notches uplift and credit profile of the issuer as per RAM’s rating methodology for Covered Bonds (click here for reference).

The reaffirmation of the Tranche 3 and 4 ratings is premised on MBSB Bank’s A2/Stable/P1 financial institution rating (FIR), the transaction’s “average” I-Risk, and superior credit support that is more than sufficient to cover losses assumed in an AAA rating stress scenario. While the cover assets of the respective tranches can support a higher rating, the transactions are limited by a four-notch rating uplift from the Bank’s long-term FIR of A2 (click here for further information on the Bank) under RAM’s rating methodology for Covered Bonds.

During the review period, the respective portfolios’ loss performance remained healthy with no material deterioration observed owing to the non-discretionary nature of the salary deductions and the low attrition rate in the civil service. The cumulative net default rate since issuance stayed below our base-case assumption. The average monthly prepayment rate, while trending above our high prepayment scenario, is credit positive for the transaction given the longer remaining tenure of the underlying PF facilities vis-à-vis the sukuk. Any negative carry will be mitigated by the serial redemption of the transactions. 

Although monthly collections were disrupted by various repayment assistance programmes initiated by Bank Negara Malaysia in the last two years, the adverse effects were cushioned by the respective portfolios’ better loss performance and credit support built up prior to the pandemic. The impact of the relief measures offered last year was milder compared to the blanket moratorium in 2020. As at end-April 2022, about one-third of accounts under the respective Tranche Cover Assets remained under forbearance measures and are expected to resume full repayments by July 2022.


Analytical contacts
Kaylee Chiah
(603) 3385 2515
kaylee@ram.com.my

Lim Chern Yit
(603) 3385 2528
chernyit@ram.com.my


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.