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RAM Ratings Services has maintained its "stable" outlook on the Malaysian takaful industry for 2020 despite the economic slowdown. Its Financial Institution Ratings co-head Sophia Lee said the industry’s strong capitalisation is sufficient to withstand headwinds. In 2019, the family takaful’s new business contributions grew 25% to RM6.2 billion, an additional 13% from 2018, mainly driven by the MySalam initiative, the national health protection scheme. Excluding MySalam, growth was still commendable at an estimated 16%, anchored by credit-related takaful products and the employee benefits. Similarly, the general takaful industry expanded by a strong 20% in 2019, led primarily by the motor business.

RAM Ratings has downgraded Kuveyt Turk's long-term rating to A1/Stable from AA3/Negative. The rating of KT Kira Sertifikalari Varlik Kiralama’s RM2.0 billion Islamic MTN Programme (2015/2025) has been revised downwards to A1(s)/Stable from AA3(s)/Negative. The Bank’s short-term financial institution rating remains unchanged at P1. The rating actions were triggered by the downgrade of Turkey’s sovereign ratings to gBB2(pi)/Stable/gNP(pi) from gBBB3(pi)/Negative/gP3(pi), due to an erosion of the country’s fiscal discipline. Kuveyt Turk has a relatively favourable funding profile, with a moderate reliance on market-based funding compared to the industry norm. The bank’s customer deposit base is well diversified. The bank’s liquidity profile is robust, with an average liquidity coverage ratio of 230% in fiscal year 2017.

According to RAM Ratings, global sukuk issuance reached US$22.2 billion (US$1=RM4.33) at the end of March, a marginal decrease from US$24.1bil recorded in the same period last year. Malaysia maintained its leadership by accounting for 38.5% of the total issuance. The ratings agency said Indonesia was next (24.7%) followed by Qatar (9.9%) and the United Arab Emirates (9%). The outstanding global sukuk summed up to US$346.7bil, as at end-March 2017, with Malaysia maintaining its leadership by commanding 48% of the amount. Ruslena Ramli, Head of Islamic Finance at RAM Ratings, said that other Gulf Cooperation Council nations are expected to include sukuk issuance as a debt management strategy. On the domestic front, outstanding Malaysian sukuk expanded 11.5%,year-on-year, to RM691.4bil, as at end-March 2017, from RM620.1bil recorded in the same period last year.

RAM Ratings has reaffirmed the AA2/Stable ratings of Lingkaran Trans Kota’s (Litrak) Sukuk Musharakah IMTN I and II Programmes (2008/2023) with a combined value of up to RM1.45bil. The ratings reflect Lebuhraya Damansara-Puchong’s (LDP) robust traffic profile, underscored by its strategic alignment through major townships, which supports its strong debt-servicing capability. According to RAM Ratings, Litrak will preserve its strong cashflow-generating ability, with an average projected annual pre-financing cashflow of about RM215mil throughout the Sukuk’s tenure. This translates into solid debt coverage, enabling the company to maintain a strong finance service coverage ratio of at least two times over the same period.

RAM Ratings sees Malaysia’s leadership in Islamic finance as a catalyst for environmental, social and governance (ESG)-driven investment. RAM Ratings CEO Foo Su Yin said for ESG growth the government needs to follow a similar path to that which has led to Malaysia’s leadership position in Islamic finance. PRI managing director Fiona Reynolds said that fiduciary duty remains the biggest barrier to ESG integration. She added that investors and policymakers need to work together to ensure sustainability issues continue to gain traction. There are compelling national-interest reasons for policy makers to promote the incorporation of ESG factors into investment practices in China, Hong Kong, India, Malaysia, Singapore and South Korea.

RAM Ratings has assigned an A3/Stable rating to Bank Muamalat Malaysia's proposed Up to MYR 1 billion Subordinated Sukuk Murabahahh Programme. The proposed Sukuk is Basel III-compliant and will qualify as tier-2 capital. The bank aims to continue concentrating on personal and corporate financing this year while de-emphasising its home-financing portfolio, given the competitive mortgage segment. Bank Muamalat has made significant strides in cost savings, which had contributed to higher y-o-y pre-tax profits in 9M FY Mar 2016. Profitability, however, remains weak compared to peers.

RAM Ratings expects investment accounts (IAs) to become an important source of new funding for Islamic banks this year as they emerge as potential game-changers in the way Islamic banks source their funds from the public. It noted that unrestricted IAs (UIAs), which are marketed to customers, are estimated to have increased more than RM14 billion in Q4’ 2015, surpassing the RM8.3 billion growth in the overall banking system’s deposits. The recent rapid growth of UIAs follows the requirement of the Islamic Financial Services Act 2013 that Islamic banks distinguish IAs from principal guaranteed deposits by end-June 2015. RAM’s assessment revealed that UIAs accounted for two-fifths of the RM47 billion of IAs in the Malaysian Islamic banking system as at end-2015.

Global sukuk market is expected to remain fairly resilient at around US$55bil to US$65bil (RM231bil to RM273bil) this year compared with US$66.4bil last year, despite ebbing global market sentiment, particularly in Malaysia amid the weaker ringgit, according to RAM Ratings. Given the steep fall in crude oil prices that have adversely affected the core sukuk markets of Malaysia and the Gulf Cooperation Council (GCC), the rating agency’s projection takes into account these countries’ government expenditure cuts and potential delays in infrastructure spending. Malaysia’s global leadership last year was underscored by US$23bil of sukuk issuance from corporate and quasi-government sectors.

Malaysia retained its leading position as a sukuk hub in 2015, accounting for 53% of global issuance at the end of the year, RAM Ratings head of Islamic finance Ruslena Ramli said. Although the performance pales in comparison to the country's 69% of share of global sukuk as at end-2014, the ringgit remained the currency of choice accounting for 39% of sukuk issuance followed by the US dollar (32%) and the Indonesian rupiah (9%). However, RAM Ratings noted that Malaysia's share of outstanding global sukuk had declined to 52% in 2015 from 55% in 2014 due to the weaker ringgit. On the overall global sukuk market, RAM Ratings noticed an increase in sukuk issuance from new markets, as Oman and the Ivory Coast have joined the growing list of sovereign sukuk issuers.

There is a growing role for Japan in the development of the Islamic finance market, according to RAM Ratings. RAM said tax reforms were introduced in 2011 to level the playing field for the issuance of J-Sukuk and conventional bonds for tax purposes, and amendments had also been made to Japanese Securitisation Law to facilitate the issuance of J-Sukuk. While there has yet to be any issuance of J-Sukuk in the Japanese market, BTMU Malaysia Bhd – a wholly-owned subsidiary of Bank of Tokyo-Mitsubishi UFJ – has taken the first important step by debuting a US$500mil Sukuk programme in Malaysia in September.

In its 'Standpoint Commentary' Malaysian Insurance and Takaful: Stable Fundamentals Amid Evolving Dynamics, RAM Ratings highlights the high growth prospects for Takaful in Malaysia. Under the new Acts, i.e. the Financial Services Act 2013 (FSA) and the Islamic Financial Services Act 2013 (IFSA), composite insurers and Takaful operators (TOs) are required to legally separate their general and life/family businesses by 2018. While RAM Ratings believes this would strengthen regulatory oversight of the sector, the additional capital and resource requirements could be significant for smaller players. RAM Ratings believes that the consensus medium-term forecast of 7-10 per cent growth for general and life insurance and double-digit growth for Takaful is largely achievable.

RAM Ratings sees great potential in Green Sukuk, in tandem with the increased interest in both Shari’ah-compliant and ethical investment. The use of Islamic instruments to raise capital for sustainable development projects will set a new precedent; Green Sukuk is anticipated to become key to the financing of low-carbon and renewable-energy economies. As the phrase implies, Green Sukuk involves certifying the environmental credentials of the project to be funded as well as its compliance with Shari’ah principles. Nonetheless, a sustainable Green Sukuk market is not without its challenges; one of these is to assure investors that the utilisation of Sukuk proceeds is for projects with economic value while simultaneously meeting accepted and credible green standard

RAM Ratings has assigned AA3/Stable/P1 financial institution ratings to Turkiye Finans Katilim Bankasi AS (the Group). RAM moreover assigned an AA3/Stable rating to the proposed RM3.0 billion Sukuk Murabahah MTN Programme to be issued by the Group's wholly owned asset leasing subsidiary, TF Varlik Kiralama AS. The assigned ratings reflect a high likelihood of extraordinary support from the Group's major shareholder, The National Commercial Bank (NCB). Turkiye Finans enjoys sound earnings which support its capital position. Although its asset-quality indicators are healthy, they may weaken amid Turkey's more challenging economic and political backdrops. On the other hand, Turkiye Finans' ratings are constrained by its limited domestic franchise and relatively weak funding position.

RAM Ratings said the Malaysian Islamic banking industry’s assets have almost doubled in the last five years, expanding to RM423bil as at end-February 2014 and accounting for 21% of the banking system’s assets. Gross financing continued to outpace deposits last year. In terms of asset quality, RAM said the the Islamic banking system’s gross impaired-financing (GIF) ratio stood low at 1.4% as at end-February 2014. RAM noted Islamic banks in Malaysia are well capitalised, with common-equity tier-1, tier-1 and total capital ratios of 12.5%, 12.5% and 14.7%, respectively, as at end-February 2014. The gradual derecognition of Basel II securities as qualifying capital, besides being an alternative source of long-term funding, will support the issuance of Basel III-compliant capital instruments for Islamic banks in Malaysia.

RAM Ratings has received confirmation from the facility agent that Al-‘Aqar Capital fully redeemed all the outstanding Class A Islamic Medium-Term Notes (IMTN), Class B IMTN, Class C IMTN and Islamic Commercial Papers (ICP) under its MYR 300 million Sukuk Ijarah Programme (2008/2013). RAM has withdrawn the respective AAA, AA2, AAA(bg) and P1 ratings of Al-‘Aqar Capital’s Class A IMTN, Class B IMTN, Class C IMTN and ICP, and no longer has any rating obligation on the debt facility.

The senior notes under HSBC Amanah Malaysia's proposed Multi-Currency Sukuk Programme of up to MYR 3 billion have received a long-term rating of AAA by RAM Ratings. At the same time, respective long- and short-term financial institution ratings of the bank have been reaffirmed at AAA and P1. The outlook for both long-term ratings in terms of stability looks positive.

After the full redemption of Bank Muamalat's RM250 million Islamic Subordinated Bonds, RAM Ratings has eliminated the A3 rating on the Islamic Subordinated Bond and will no longer have any rating obligations on the debt facility.

Confirmations were received by RAM Ratings that sustain the fact that Esso Malaysia fully redeemed and cancelled its MYR 300 million ($99.9 million) Islamic Commercial Papers Issuance Facility Programme on 9 May 2011.
RAM Ratings will maintain surveillance on the preliminary P1 rating of Esso's proposed MYR 300 million Islamic Commercial Papers Issuance Programme.

Bank Muamalat was given A3 by RAM Ratings. Bank Muamalat Malaysia’s respective long- and short-term financial institution ratings were also reestablished at A2 and P1.
RAM Ratings expects the bank's credit costs to restrain as a more rigorous credit-risk-management infrastructure has been put together to guarantee stricter financing origination while efforts to clean up legacy troubled credits are almost completed.