Aeon Credit Services has enjoyed healthy net interest margin (NIM) in the past
KUALA LUMPUR: RAM Rating Services has reaffirmed the P1 rating of Aeon Credit Service (M) Bhd
’s Islamic CP programme of up to RM1bil.
It said the rating reflects the high likelihood of parental support from Aeon Financial Service Co., Ltd. (AFS), the consumer financing arm of Japan-based Aeon Co., Ltd.
Aeon Credit plays a key role AFS’s strategy of diversifying and expanding its revenue base in Asia.
Aeon Credit has an established franchise in Malaysian consumer durables and motorcycle financing and contributed 13.7% of AFS’s operating income in FY March 2015 and 4.5% of Aeon Co’s operating income in FY February 2016.
“Although Aeon Credit operates in a riskier segment compared to the banking sector, its lucrative margins has provided healthy buffer to absorb the credit losses, which arise due to more costly funding and the expansion of lower-yielding products such as its used-car financing,” it said.
RAM Ratings pointed out that in fiscal year 2016, Aeon Credit’s financing portfolio showed some strain following its rapid growth in the last few years, manifesting in weak asset-quality indicators.
Its gross impaired financing ratio remained relatively high at 2.5% as at end-February 2016 (end-February 2015: 2.8%) while its credit-cost ratio also stayed elevated at 4.3% in FY Feb 2016 (FY Feb 2015: 4.4%).
“Given that Aeon Credit’s business model is highly concentrated in consumer financing, it is also exposed to regulatory credit-tightening measures that could constrain the AEON Credit’s growth and profit performance.
“Nonetheless, Aeon Credit continues to enjoy strong profit performance, with return on assets and net interest margin at a strong 5.5% and 13.3%, respectively, in FY Feb 2016.
“As a non-deposit-taking entity, the company is inherently dependent on external borrowings to fund its lending operations. Over the years, its debt level has been rising to support its financing growth, resulting in a higher adjusted gearing ratio of 6.6 times as at end-FY Feb 2016 (end-FY Feb 2015: 6.0 times),” it said.
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