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Moody's: RHB Islamic, AmIslamic Banks' Issuance Plans For Basel III Subordinated Sukuk Credit Positive
SINGAPORE, Feb 24 (Bernama) -- Moody's Investors Service says the issuance plans for Basel III subordinated sukuk for two Malaysian Islamic banks namely RHB Bank Bhd and AmIslamic Bank Bhd are credit positive.
In its research note Credit Outlook -- Credit Implications of Current Events, the rating agency said last Tuesday, RHB Islamic Bank (unrated), the Islamic banking subsidiary of RHB Bank Bhd (A3 stable, D+/ba1 stable14), announced that it had received regulatory approval to issue up to RM1 billion (around US$300 million) of Basel III-compliant, Tier 2 subordinated sukuk.
These securities are designed to either write down or convert into equity in the event the regulator deems the bank issuer as having reached a point of non-viability (PONV sukuk).
The approval came a few days after another Malaysian Islamic bank, AmIslamic Bank (unrated), announced a similar programme for RM3 billion (US$900 million).
Moody's vice president Eugene Tarzimanov said: "Moody's believes the issuance plans are credit positive for the two Malaysian banking groups and other banks that follow their lead because the PONV sukuk programmes facilitate access to capital, support growth and strengthen their loss-absorption capability while complying with Basel III."
Moreover, Tarzimanov said, the subordinated programmes will provide these institutions with other avenues to raise capital than capital support from parent banks.
"We estimate that RHB Islamic's RM1 billion Tier 2 issuance would improve its total capital adequacy ratio to around 22 per cent from 14.6 per cent as of Sept 30, 2013," he said.
The same amount at AmIslamic's would have boosted its capital adequacy ratio to around 19 per cent from 14.6 per cent as of year-end 2013. This year, AmIslamic is unlikely to issue the entire RM3 billion amount allowed under its programme because of its sound capitalisation, he said.
Tarzimanov said Basel III-compliant Tier 2 sukuk is an emerging product and "we know of only two other issues to date: Saudi Hollandi Bank (A1 stable, C-/baa1 stable) issued US$667 million and Saudi British Bank (Aa3 stable, C+/a2 stable) issued US$400 million, both in December 2013.
"We expect the two Malaysian deals to create legal precedents in the domestic market and set pricing benchmarks that will open up new PONV sukuk issuance in Malaysia amid rapid growth in the Malaysian Islamic banking sector."
Last year, Malaysian Islamic bank assets increased 16 per cent, twice as high as growth in non-Islamic commercial banking assets.
The global outstanding sukuk market increased 17 per cent last year and reached US$270 billion, with Malaysia the global sukuk market leader, accounting for 59 per cent of the market.
"We expect the Malaysia sukuk market to continue its strong growth, given the infrastructural development projects that the government plans to introduce as part of its economic transformation programme," he added.
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