AMISLAMIC BANK BERHAD

Transcription

1 FEBRUARY 2014 AMISLAMIC BANK BERHAD Financial Institution Ratings Proposed RM3 billion Subordinated Sukuk Murabahah Programme RM2 billion Subordinated Sukuk Musharakah Programme (2011/2026) RM3 billion Senior Sukuk Musharakah Programme (2010/2040) 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.

2 CREDIT RATING RATIONALE FINANCIAL INSTITUTION RATINGS FEBRUARY 2014 Analysts: Cheryl Yong (603) Gladys Chua (603) Principal Activity: Islamic banking Financial Institution Ratings: AA 2 /Stable/P1 [Reaffirmed] Instruments: (i) Proposed RM3 billion Subordinated Sukuk Murabahah Programme (ii) RM2 billion Subordinated Sukuk Musharakah Programme (2011/2026) (iii) RM3 billion Senior Sukuk Musharakah Programme (2010/2040) Issue Ratings: (i) AA 3 /Stable [Assigned] (ii) AA 3 /Stable [Reaffirmed] (iii) AA 2 /Stable [Reaffirmed] Islamic Contracts: (i) Murabahah (via a Tawarruq arrangement) (ii) Musharakah (iii) Musharakah Maturity Dates: (i) 30 years from first issuance (ii) 30 September 2026 (iii) 20 September 2040 Lead Arranger: AmInvestment Bank Berhad Last Rating Action: 12 February 2014 AMISLAMIC BANK BERHAD Initial Rating and Rating Update Summary RAM Ratings has assigned a final AA 3 /Stable rating to AmIslamic Bank Berhad s (the Bank) proposed RM3 billion Subordinated Sukuk Murabahah Programme (the Proposed Sukuk Programme). At the same time, we have reaffirmed AmIslamic s financial institution ratings at AA 2 /Stable/P1. The long-term ratings of the Bank s RM2 billion Subordinated Sukuk Musharakah Programme (2011/2026) and RM3 billion Senior Sukuk Musharakah Programme (2010/2040) have also been reaffirmed at AA 3 /Stable and AA 2 /Stable, respectively. The financial institution ratings of AmIslamic reflect its strategic importance as AMMB Holdings Berhad s (AmBank Group, rated AA 3 /Stable/P1) Islamic banking arm and the Bank s highly integrated operations with its sister bank, AmBank (M) Berhad (AmBank, rated AA 2 /Stable/P1) under a universal-banking platform. AmIslamic leverages on AmBank s risk-management systems, infrastructure, extensive branch network and channels. AmIslamic remains focused on automobile financing, which makes up the lion's share of the Bank's financing portfolio. The Bank s gross impaired-financing (GIF) ratio showed an uptick as at end-september 2013, mainly due to the impairment of a lumpy credit and the seasoning impact on its automobile financing portfolio following rapid growth. However, we note that its GIF ratio of 1.5% compares favourably with the industry average of 2.0%. The Bank s credit-cost ratio has been also easing in the last few years, supported by strong recoveries; this ratio came up to an annualised 0.7% in 1H FY Mar On the funding front, AmIslamic remains exposed to depositor-concentration risk. We, however, draw comfort from the expected liquidity support from AmBank Group if the need arises. As at end-september 2013, AmIslamic's commonequity tier-1 and total capital ratios stood at a healthy 10.0% and 15.1%, respectively. For more details, please refer to RAM s rating rationale on AmIslamic published 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.

3 on 29 November Rating Approach The sukuk to be issued under the Proposed Sukuk Programme are Basel IIIcompliant and will receive Tier 2 regulatory capital treatment. In addition to a subordinated ranking in the priority of claims in the event of bankruptcy or liquidation, the sukuk also have a non-viability loss-absorption feature that may cause the outstanding principal and any other amounts owed to be written-off following the occurrence of a non-viability event. Compared to existing Basel II subordinated debts issued by Malaysian banks, the inclusion of the additional non-viability term would not necessitate additional downward notching adjustments from RAM s current approach to rating Basel II Tier 2 capital instruments. RAM views the likelihood of a bank being non-viable as sufficiently reflected in its long-term financial institution rating. Our view takes into account RAM s interpretation of circumstances that will constitute a nonviability event, as articulated by Bank Negara Malaysia (BNM) in its Capital Adequacy Framework for Islamic Banks on Capital Components. For further details on our rating approach, please refer to our methodology paper, Rating Bank Securities (published in November 2013), available at The sukuk to be issued under the Proposed Sukuk Programme are rated one notch below AmIslamic s long-term financial institution rating, reflecting the lower ranking in the priority of claims upon bankruptcy or liquidation, relative to senior unsecured creditors. Proposed Subordinated Sukuk Programme The Proposed Sukuk Programme will have a programme limit of RM3 billion and tenure of 30 years from the date of the first issuance. Each issuance of the Proposed Sukuk Programme may have tenure of at least 5 years from the issue date subject to the call option which allow the Bank to redeem the securities on any periodic profit payment date after a minimum period of 5 years from the date of the tranche issuance. The Proposed Sukuk Programme applies the underlying Shariah contract of Murabahah. The sukuk to be issued under the Proposed Sukuk Programme will have a nonviability loss-absorption feature which will be activated upon the occurrence of a non-viability event. A non-viability event is the earlier of the following: (i) BNM and Malaysia Deposit Insurance Corporation (PIDM) notify AmIslamic writing that BNM and PIDM are of the opinion that a write-off is necessary, without which AmIslamic would cease to be viable; or AmIslamic Bank Berhad 2

4 (ii) BNM and PIDM publicly announce that a decision has been made by BNM, PIDM, or any federal or state government in Malaysia, to provide capital injections or equivalent support to AmIslamic, without which AmIslamic would cease to be viable. Upon the occurrence of a non-viability event, BNM shall have the option to require the entire outstanding principal (or such portion thereof) and all other amounts owing under the Proposed Sukuk Programme to be written off. This write-off will not constitute an event of default or trigger cross-default clauses. AmIslamic Bank Berhad 3

5 Corporate Information AmIslamic Bank Berhad Date of Incorporation: 14 April 1994 Commencement of Business: Major Shareholders (as at 30 September 2013): Directors: Auditor: Listing: 1 May 2006 (as an Islamic banking subsidiary) AMMB Holdings Berhad 100% Tan Sri Azman Hashim (Chairman) Tun Mohammed Hanif Omar Tan Sri Datuk Clifford Francis Herbert Dato Larry Gan Nyap Gan Nyap Liow Loh Chen Peng Chin Yuen Yin Cheah Tek Kuang Ashok Ramamurthy Ernst & Young Not Listed Key Management: Ashok Ramamurthy Datuk Mohamed Azmi Mahmood Paul Lewis Dato James Lim Cheng Poh Kok Tuck Cheong Pushparani Rajadurai Mandy Simpson Nigel Denby Ross Neil Foden Datuk Mahdi Murad Tan Chin Aun Group Managing Director Deputy Group Managing Director Managing Director, Retail Banking Managing Director, Business Banking Managing Director, Investment Banking Managing Director, Corporate & Institutional Banking Chief Financial Officer Chief Risk Officer Chief Operations Officer Chief Executive Officer of AmIslamic Bank Berhad Senior General Manager, Transaction Banking Capital History: Year Remarks Amount (RM million) 2005 Balance brought forward (from the former commercial bank) 2005 Capital-reduction exercise pursuant to the business merger of AmBank (M) Berhad (formerly known as AmFinance Berhad) and AmIslamic Bank Berhad (formerly known as AmBank Berhad) Cumulative Total (RM million) (608.68) Issuance of new ordinary shares Issuance of new ordinary shares Issuance of new ordinary share AmIslamic Bank Berhad 4

6 FINANCIAL SUMMARY AmIslamic Bank Berhad Bank restated unaudited STATEMENT OF FINANCIAL POSITION (RM million) 31-Mar Mar Mar Mar Sep-13 Cash & Short-Term Funds 3, , , , , Deposits & Placements with Financial Institutions , , Securities Purchased Under Resale Agreements Financial Investments at Fair Value Through Profit or Loss , , Financial Investments Available-For-Sale , , Financial Investments Held-T o-maturity , , Gross Financing & Advances 12, , , , , Collective Impairment Provisions (184.80) (479.01) (460.41) (490.41) (491.86) Individual Impairment Provisions (64.78) (25.45) (16.32) (14.45) (29.43) Net Financing & Advances 11, , , , , Statutory Deposits Investments in Subsidiaries/Associates/Jointly-Controlled Entities Goodwill & Intangibles Property, Plant & Equipment Other Assets Total Assets 17, , , , , Customer Deposits 13, , , , , Current Account Deposits , , , , Savings Account Deposits 1, , , , , Investment Deposits 11, , , , , Negotiable Instruments of Deposits Other Deposits , , Interbank Deposits 1, , , , , Bills & Acceptances Payable Securities Sold Under Repurchase Agreements Senior Islamic Securities Subordinated Islamic Securities , , Hybrid Capital Islamic Securities Other Sources of Funds , , , Other Liabilities Total Liabilities 15, , , , , Equity Share Capital Share Premium T reasury Shares Statutory Reserve Revaluation Reserve Available-For-Sale Reserve 2.15 (6.32) (9.21) (7.26) (13.45) Other Reserves Retained Profits/(Accumulated Losses) Non-Controlling Interests Total Equity 1, , , , , Total Liabilities + Total Equity 17, , , , , Additional Disclosure: Commitments & Contingencies 4, , , , , Risk-Weighted Assets 12, , , , , Tier-1 Capital Base * 1, , , , , Total Capital Base * 1, , , , , Notes: * After proposed dividends FY Mar 2012 figures have been restated as a result of retrospective application of MFRS 139 AmIslamic Bank Berhad 5

7 FINANCIAL SUMMARY AmIslamic Bank Berhad Bank restated unaudited STATEMENT OF COMPREHENSIVE INCOME (RM million) 31-Mar Mar Mar Mar Sep-13 6 months Financing Income , , , Financing Expense (335.34) (439.77) (636.47) (816.01) (443.75) Net Financing Income Fee Income Investment Income Other Income (0.02) (13.14) (0.39) Gross Income Personnel Expenses (6.52) (9.41) (9.93) (11.76) (5.40) Other Operating Expenses (252.73) (271.44) (291.05) (342.69) (174.47) Operating Income before Impairment Charges Net Impairment Charges on Financing (90.30) (247.79) (163.21) (136.09) (73.75) Net Impairment Charges on Financial Investments (4.22) Net Impairment Charges on Commitments, Contingencies & Other Assets (6.28) (0.13) (0.70) 0.69 Operating Income after Impairment Charges Non-Recurring Items Share of Associates/Jointly-Controlled Entities Profits/(Losses) Pre-Tax Profit/(Loss) T axation & Zakat (95.27) (52.54) (80.40) (73.73) (40.06) Net Profit/(Loss) Gain/(Loss) on Available-For-Sale Financial Investments (9.00) (4.04) (3.85) 2.61 (8.26) Changes in Cash Flow & Net Investment Hedges Foreign Currency Translation Differences Share of Other Comprehensive Income/(Loss) of Associates/Jointly-Controlled Ent Income T ax Relating to Other Comprehensive Income/(Loss) (0.65) 2.06 Other Components of Comprehensive Income/(Loss) Total Comprehensive Income/(Loss) Additional Disclosure: Net Profit/(Loss) Attributable to Non-Controlling Interests Dividends - Ordinary Shares & Preference Shares FY Mar 2012 figures have been restated as a result of retrospective application of MFRS 139 AmIslamic Bank Berhad 6

8 FINANCIAL RATIOS AmIslamic Bank Berhad Bank restated unaudited KEY RATIOS 31-Mar Mar Mar Mar Sep-13 PROFITABILITY (%) Net Financing Margin 4.18% 3.59% 3.02% 2.66% 2.42% * Non-Financing Income to Gross Income 7.59% 10.14% 12.02% 9.61% 9.85% Cost to Income 37.16% 37.96% 39.41% 43.06% 42.38% Return on Assets 2.28% 1.12% 1.31% 1.14% 1.05% * Return on Risk-Weighted Assets 3.14% 1.48% 1.72% 1.61% 1.53% * Return on Equity 27.20% 15.29% 19.24% 17.28% 15.67% * ASSET QUALITY (%) Gross Impaired Financing Ratio 1.48% 2.09% 1.25% 1.19% 1.49% Net Newly Classified Impaired Financing Ratio 0.68% 1.58% 0.86% 1.02% 1.52% * Financing Credit Cost Ratio 0.78% 1.79% 0.95% 0.66% 0.65% * Impairment Charge Ratio 0.75% 1.59% 0.84% 0.56% 0.54% * Gross Impaired Financing Coverage Ratio % % % % % LIQUIDITY & FUNDING (%) Liquid Asset Ratio 32.58% 35.72% 23.18% 24.54% 26.00% Interbank Deposits to Total Profit Bearing Funds 9.48% 7.91% 6.28% 8.33% 10.36% Customer Deposits to Total Profit Bearing Funds 85.45% 82.22% 77.52% 77.21% 77.48% CASA Deposits to T otal Deposits 15.41% 16.66% 24.31% 28.61% 23.98% Financing to Deposits Ratio 87.76% 86.87% % 94.73% 94.93% CAPITALISATION (%) Internal Rate of Capital Generation 4.68% 8.53% 14.07% 13.44% 6.00% Common Equity Tier-1 Capital Ratio NA NA NA 9.47% ^ 9.98% ^ Tier-1 Capital Ratio 10.53% 8.02% 8.99% 9.47% ^ 9.98% ^ Total Capital Ratio 15.29% 12.53% 14.99% 14.62% ^ 15.14% ^ Notes: * annualised NA = Not Available / Not Applicable FY Mar 2012 figures have been restated as a result of retrospective application of MFRS 139 ^ The capital components of these ratios are computed in accordance with Bank Negara Malaysia's latest Capital Adequacy Framework, based on Basel III standards AmIslamic Bank Berhad 7

9 FINANCIAL RATIOS AmIslamic Bank Berhad Bank KEY RATIOS PROFITABILITY (%) Net Financing Margin Non-Financing Income to Gross Income Cost to Income Return on Assets Return on Risk-Weighted Assets Return on Equity Non-Finance Income Profit Earning Assets Total Financial Investments FORMULAE Net Finance Income / Average Profit Earning Assets Non-Finance Income / Gross Income (Personnel Expenses + Other Operating Expenses) / Gross Income Pre-T ax Profit/(Loss) / Average T otal Assets Pre-T ax Profit/(Loss) / Average T otal Risk-Weighted Assets Pre-T ax Profit/(Loss) / Average T otal Equity Fee Income + Investment Income + Other Income Cash & Short-T erm Funds + Deposits & Placements with Financial Institutions + Securities Purchased Under Resale Agreements + T otal Financial Investments + Net Financing & Advances Financial Investments at Fair Value Through Profit or Loss + Financial Investments Available-For-Sale + Financial Investments Held-T o-maturity ASSET QUALITY (%) Gross Impaired Financing Ratio T otal Impaired Financing / Gross Financing & Advances Net Newly Classified Impaired Financing Ratio Net Newly Classified Impaired Financing / Average Gross Financing & Advances Financing Credit Cost Ratio Net Impairment Charges on Financing / Average Gross Financing & Advances Impairment Charge Ratio (Net Impairment Charges on Financing + Net Impairment Charges on Financial Investments) / (Average Gross Financing & Advances + Average Total Financial Investments) Gross Impaired Financing Coverage Ratio T otal Provisions / Gross Impaired Financing Total Provisions Collective Impairment Provisions + Individual Impairment Provisions Net Newly Classified Impaired Financing Newly Classified Impaired Financing - Recoveries on Impaired Financing - Impaired Financing Reclassified As Performing LIQUIDITY & FUNDING (%) Liquid Asset Ratio Liquid Assets / (Customer Deposits + Short-Term Funds) Interbank Deposits to Total Profit Bearing Funds Interbank Deposits / Profit Bearing Funds Customer Deposits to Total Profit Bearing Funds Customer Deposits / Profit Bearing Funds CASA Deposits to Total Deposits (Current Account + Savings Account Deposits) / Customer Deposits Financing to Deposits Ratio Net Financing & Advances / Customer Deposits Liquid Assets Cash & Short-T erm Funds + Deposits & Placements with Financial Institutions + Securities Purchased Under Resale Agreements + Quoted Financial Investments (excluding Financial Investments Held-To-Maturity) Short-T erm Funds Interbank Deposits + Bills & Acceptances Payable + Securities Sold Under Repurchase Agreements Profit Bearing Funds Customer Deposits + Interbank Deposits + Bills & Acceptances Payable + Securities Sold Under Repurchase Agreements + T otal Borrowings T otal Borrowings Senior Islamic Securities + Subordinated Islamic Securities Hybrid Capital Islamic Securities + Other Borrowings CAPITALISATION (%) Internal Rate of Capital Generation (Net Profit/(Loss) - Dividends) / Average Total Equity Common Equity Tier-1 Capital Ratio Common Equity Tier-1 Capital / Total Risk-Weighted Assets Tier-1 Capital Ratio Tier-1 Capital / Total Risk-Weighted Assets Total Capital Ratio Total Capital / Total Risk-Weighted Assets Common Equity T ier-1 Capital Ordinary Shares + Share Premium + Retained Earnings + Non-Controlling Interests + Applicable Reserves ± Applicable Regulatory Adjustments Tier-1 Capital Common Equity Tier-1 Capital + Additional Tier-1 Capital Instruments ± Applicable Regulatory Adjustments Tier-2 Capital Tier-2 Capital Instruments ± Applicable Regulatory Adjustments Total Capital Tier-1 Capital + Tier-2 Capital AmIslamic Bank Berhad 8

10 CREDIT RATING DEFINITIONS Financial Institution Ratings A Financial Institution Rating ("FIR") is RAM Ratings' current opinion on the overall capacity of a financial institution to meet its financial obligations. The opinion is notspecific to any particular financial obligation, as it does not take into account the expressed terms and conditions of any specific financial obligation. Long-Term Ratings AAA AA A BBB BB B C D A financial institution rated AAA has a superior capacity to meet its financial obligations. This is the highest long-term FIR assigned by RAM Ratings. A financial institution rated AA has a strong capacity to meet its financial obligations. The financial institution is resilient against adverse changes incircumstances, economic conditions and/or operating environments. A financial institution rated A has an adequate capacity to meet its financial obligations. The financial institution is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. A financial institution rated BBB has a moderate capacity to meet its financial obligations. The financial institution is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. A financial institution rated BB has a weak capacity to meet its financial obligations. The financial institution is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. A financial institution rated B has a very weak capacity to meet its financial obligations. The financial institution has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. A financial institution rated C has a high likelihood of defaulting on its financial obligations. The financial institution is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaultingon its financial obligations. A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations. Short-Term Ratings P1 P2 P3 NP D A financial institution rated P1 has a strong capacity to meet its short-term financial obligations. This is the highest shortterm FIR assigned by RAM Ratings. A financial institution rated P2 has an adequate capacity to meet its short-term financial obligations. The financial institution is more susceptible to the effects of deteriorating circumstances than thosein the highest-rated category. A financial institution rated P3 has a moderate capacity to meet its short-term financial obligations. The financial institution is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. A financial institution rated NP has a doubtful capacity to meet its short-term financial obligations. The financial institution faces major uncertainties that could compromise its capacity for payment of financial obligations. A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the financial institution ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the financial institution ranks at the lower end of its generic rating category. AmIslamic Bank Berhad 9

11 CREDIT RATING DEFINITIONS Issue Ratings - Debt-Based Sukuk An Issue Rating for a debt-based sukuk is RAM Ratings' current opinion on the creditworthiness of a particular debt-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debtbased sukuk on a full and timely basis, taking into account its expressed terms and conditions. RAM Ratings sukuk ratings are, however, not a measure of compliance with Shariah principles or the role, formation, practices, legitimacy and soundness of the Shariah advisors recommendations and decisions. Long-Term Ratings AAA AA A BBB BB B C D A sukuk rated AAA has superior safety for payment of financial obligations. This is the highest long-term Issue Rating assigned by RAM Ratings to a debt-based sukuk. A sukuk rated AA has high safety for payment of financial obligations. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated A has adequate safety for payment of financial obligations. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. A sukuk rated BBB has moderate safety for payment of financial obligations. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated BB has low safety for payment of financial obligations. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/oroperating environments. A sukuk rated B has very low safety for payment of financial obligations. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. A sukuk rated C has a high likelihood of default. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaulting on a particular sukuk. A sukuk rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular sukuk. Short-Term Ratings P1 P2 P3 NP D A sukuk rated P1 has high safety for payment of financial obligations in the short term. This is the highest short-term Issue Rating assigned by RAM Ratings to a debt-based sukuk. A sukuk rated P2 has adequate safety for payment of financial obligations in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. A sukuk rated P3 has moderate safety for payment of financial obligations in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated NP has doubtful safety for payment of financial obligations in the short term. The issuer faces major uncertainties that could compromise its capacity for payment of a particular sukuk. A sukuk rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular sukuk. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which have been enhanced by a bank guarantee or other supports, respectively. AmIslamic Bank Berhad 10

12 CREDIT RATING DEFINITIONS Issue Ratings - Partnership-Based Sukuk An Issue Rating for a partnership-based sukuk is RAM Ratings' current opinion on the creditworthiness of a particular partnership-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the payment of capital and expected returns on a full and timely basis, taking into account the expressed terms and conditions of the investment contract. RAM Ratings sukuk ratings are, however, not a measure of compliance with Shariah principles or the role, formation, practices, legitimacy and soundness of the Shariah advisors recommendations and decisions. Long-Term Ratings AAA AA A BBB BB B C D A sukuk rated AAA has superior safety for payment of capital and expected returns. This is the highest long-term Issue Rating assigned by RAM Ratings to a partnership-based sukuk. A sukuk rated AA has high safety for payment of capital and expected returns. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated A has adequate safety for payment of capital and expected returns. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. A sukuk rated BBB has moderate safety for payment of capital and expected returns. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This isthe lowest investment-grade category. A sukuk rated BB has low safety for payment of capital and expected returns. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated B has very low safety for payment of capital and expected returns. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. A sukuk rated C has a high likelihood of not meeting the payment of capital and expected returns. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it not fulfilling the terms of the investment contract. A sukuk rated D is either currently not meeting or will not meet the payment ofcapital and expected returns. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise the fulfilment of the investment contract's terms. Short-Term Ratings P1 P2 P3 NP D A sukuk rated P1 has high safety for payment of capital and expected returns in the short term. This is the highest shortterm Issue Rating assigned by RAM Ratings a partnership-based sukuk. A sukuk rated P2 has adequate safety for payment of capital and expected returns in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. A sukuk rated P3 has moderate safety for payment of capital and expected returns in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated NP has doubtful safety for payment of capital and expected returns in the short term. The issuer faces major uncertainties that could compromise its capacity for fulfiling the terms of the investment contract. A sukuk rated D is either currently not meeting or will not meet the payment ofcapital and expected returns. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise the fulfilment of the investment contract's terms. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which have been enhanced by a bank guarantee or other supports, respectively. AmIslamic Bank Berhad 11

13 Published by RAM Rating Services Berhad Reproduction or transmission in any form is prohibited except by permission from RAM Rating Services Berhad. Copyright 2014 by RAM Rating Services Berhad RAM Rating Services Berhad Suite 20.01, Level 20 The Gardens South Tower Mid Valley City, Lingkaran Syed Putra Kuala Lumpur Tel: (603) / (603) Fax: (603) ramratings@ram.com.my Website: RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. RAM Ratings, its rating committee members and the analysts involved in the rating exercise have not encountered and/or are not aware of any conflict of interest relating to the rating exercise. RAM Ratings will adequately disclose all related information in the report if there are such instances. AmIslamic Bank Berhad 12