RAM reaffirms Sabah Credit Corporation’s AA1/ Stable/P1 sukuk ratings

KUALA LUMPUR: RAM Ratings has reaffirmed the AA1/ Stable/P1 ratings of Sabah Credit Corporation’s (SCC) outstanding sukuk instruments.

SCC is wholly owned by the State Government of Sabah and operates under the purview of the Sabah Ministry of Finance.

“The ratings continue to reflect our expectation of continued support from the State Government,” RAM said.

“This has been clearly demonstrated through the subordination of SCC’s loans from the State Government to debt securities, the conversion of such loans into share capital, and the extension of letters of support for the Corporation’s debt securities.”

In view of its monoline business model, personal financing accounted for almost all (97 per cent) of SCC’s financing book as at endDecember 2017.

These facilities are primarily extended to civil servants and are repaid via direct salary deductions, thereby containing the Corporation’s credit risk.

Financing growth slowed to 6.8 per cent in fiscal 2017 in view of the absence of a midyear salary increment and the lower cost of living allowances for SCC’s civil servant-centric customer base.

The Corporation conservatively projects low single-digit financing growth for fiscal 2018 as a mid-year salary increment for civil servants appears unlikely.

“Aided by larger write-offs during the year, SCC’s gross impaired financing (GIF) ratio eased further to 2.7 per cent as at end-December 2017.

“However, the Corporation recorded an improved creditcost ratio of 0.8 per cent in fiscal 2017 while its GIF coverage ratio stood at a stronger 104 per cent.

“SCC continues to be exposed to refinancing and liquidity risks, given the large composition of short-term market-based borrowings in its portfolio. Nevertheless, we anticipate ready funding and liquidity support from the State Government, if needed.

“The Corporation’s gearing ratio stayed manageable at 4.3 times as at end-December 2018.”