CREDIT RATING RATIONALE PP8713/10/2007

Transcription

1 CREDIT RATING RATIONALE PP8713/10/2007 FINANCIAL INSTITUTION RATINGS JULY 2010 Analysts: Josephine Ngiam (603) Wong Yin Ching (603) Principal Activity: Islamic banking Financial Institution Ratings: Long-term: AA 3 [Reaffirmed] Short-term: P1 [Reaffirmed Instruments: (i) Proposed RM3 billion Senior Sukuk Musyarakah Programme (2010/2040) (ii) RM400 million Subordinated Sukuk Musyarakah (2006/2016) Islamic Contracts: (i) Musyarakah (ii) Musyarakah Ratings: (i) AA 3 [Assigned] (ii) A 1 [Reaffirmed] Rating Outlook: (i) Stable (ii) Stable Last Rating Action: 5 November 2009 Profit Margins: (i) Determined at issuance (ii) Years 1-5: 4.80% per annum Year 6 onwards: 0.50% step-up per annum Tenure/Maturity Date: (i) 30 years from issuance date (ii) 21 December 2016 AMISLAMIC BANK BERHAD Initial Rating & Rating Update Summary RAM Ratings has assigned a long-term rating of AA 3 to AmIslamic Bank Berhad s ( AmIslamic or the Bank ) Proposed RM3 billion Senior Sukuk Musyarakah Programme (2010/2040) ( Proposed Securities ). Concurrently, we have reaffirmed AmIslamic s long- and short-term financial institution ratings at AA 3 and P1, respectively. Meanwhile, the long-term rating of the Bank s RM400 million Subordinated Sukuk Musyarakah (2006/2016) has also been reaffirmed at A 1. All the long-term ratings have a stable outlook. The 1-notch difference between the rating of the RM400 million Subordinated Sukuk Musyarakah and AmIslamic s long-term financial institution rating denotes the legal subordination of the former to the Bank s senior unsecured obligations. The ratings hinge on the fact that AmIslamic is a carve-out from AmBank (M) Berhad s ( AmBank ) Islamic banking operations, and generally possesses a credit-risk profile that is similar to that of its parent. RAM Ratings reaffirmed AmBank s AA 3 /P1 financial institution ratings in February 2010, with a stable outlook. The Bank also relies on the back-room operations and risk-management system of AmBank, on top of leveraging on its branch network and e-channels. AmIslamic and AmBank, as a group, are formidable players in the local autofinancing sector, commanding a collective 20.9% of this market as at end- December On its own, AmIslamic has strong credit fundamentals. Its asset quality is considered very healthy with its gross and net non-performing-financing ( NPF ) ratios at 1.8% and 1.0%, respectively, as at end-december 2009 (end-march 2009: 2.2% and 1.3%), below the banking industry s 3.2% and 1.8% as at the same date. Meanwhile, AmIslamic s pre-tax profit jumped at an annualised 62.5% to RM260.0 million in the first 9 months of FYE 31 March 2010 ( 9M FY Mar 2010 ) (FY March 2009: RM213.3 million), underscored by higher net financing income and lower financing-loss provisions. Although the anticipated rise in the overnight policy rate ( OPR ) may impinge on the Bank s net financing margin, we expect AmIslamic s profit performance to be sustainable given the 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. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

2 Lead Arrangers: (i) AmInvestment Bank Berhad (ii) AmInvestment Bank Berhad Trustees: (i) Pacific Trustees Berhad (ii) BHLB Trustee Berhad Shariah Advisors: (i) Dr Mohd Daud Bakar (ii) Dr Mohd Daud Bakar expected growth in its financing assets, the Bank s initiative in expanding lowcost current- and savings-account ( CASA ) deposits and its profit-rate hedging. Elsewhere, the Bank s Tier-1 risk-weighted capital-adequacy ratio ( RWCAR ) and overall RWCAR remained sound at a respective 10.2% and 15.0% as at end-december Transaction Structure and Key Features of the Proposed Securities Declares trust over the Trust Assets 4 Issuer/ Manager/ Obligor 2 Issues Sukuk 5 Appointment as Manager 7 Purchase Undertaking Musyarakah Venture (Investment in Shariahcompliant Trust Assets) Trustee Investors (Sukukholders) 3 Musyarakah Capital 6 Periodic Distribution Source: AmIslamic Bank Berhad Musyarakah 1 The Proposed Securities will rank pari passu with the Bank s other senior debts and have priority over its subordinated debts and hybrid capital, if any. The Proposed Securities will be issued based on the Shariah principles of Musyarakah. For each tranche, the holders of the Proposed Securities ( Sukuk holders ) will form a partnership among themselves, to invest in the Shariahcompliant financial services of AmIslamic ( Musyarakah Venture ). AmIslamic, as the issuer, will issue sukuk to the Sukuk holders, in consideration of their capital contributions ( Musyarakah Capital ) and declare a trust over the Trust Assets 1. AmIslamic will also be appointed by the Trustee (acting on behalf of Sukuk holders) as its agent ( the Manager ) to manage the Musyarakah venture. The Sukuk holders will share the profit or loss from the Musyarakah Venture in proportion to their respective contributions to the Musyarakah Capital. The income generated from the Trust Assets will be distributed monthly, quarterly or semi-annually at the option of the issuer, and the Sukuk holders will agree upfront that they will receive returns, if any, up to the expected level. The 1 The issuer s Shariah-compliant financial-services business (including the Profit Reserve Account). AmIslamic Bank Berhad 2

3 Manager will deposit any amount in excess of the expected returns into a Profit Reserve Account. If, on any payment date, the income generated by the Trust Assets and the funds in the Profit Reserve Account are insufficient to meet the expected returns, AmIslamic will have to make an advance payment during the tenure of the Sukuk - to equal such deficiency. On a separate note, AmIslamic will undertake to purchase the Sukuk holders interests in the Trust Assets at the exercise price (i.e. 100% of the outstanding principal amount and the expected returns on the date) upon the maturity date of each tranche, or upon the declaration of dissolution event. Asset Quality Still focused on retail financing Above-average asset quality AmIslamic achieved a robust financing growth of 29.1% (annualised) to RM12.3 billion as at end-december 2009 from RM10.1 billion as at end-march This was anchored by the growth in personal financing, which accounted for 22.3% of its total financing. We note that personal financing as a proportion of the Bank s total financing assets has been rising gradually over the past few years. However, vehicle financing remained its core business, despite the downtrend in its slice of the Bank s financing pie, i.e. from 67.3% as at end-march 2007 to 50.5% as at end-december Going forward, given the improved economic climate, we anticipate AmIslamic to continue charting a double-digit growth in its financing assets. RAM Ratings notes that AmIslamic s asset quality has continued improving despite the challenging economic environment. This is evinced by the Bank s gross and net NPF ratios of a respective 1.8% and 1.0% as at end-december 2009 (end-march 2009: 2.2% and 1.3%), which are better than the industry s respective averages of 3.2% and 1.8%. The improvement in the Bank s assetquality indicators had mainly stemmed from a combination of less NPF accretion during the period and an enlarged financing base. AmIslamic s access to cooperatives that utilise Angkatan Koperasi Kebangsaan Malaysia for the collection of financing repayments had helped keep its default rates low. As at end-december 2009, the ratio of the Bank s loan-loss reserves over gross NPF had risen to 124.8% (end-march 2009: 110.8%), underscored by prudent loanloss provisioning amid the recent downturn. Performance Improving asset quality boosted profit performance For 9M FY Mar 2010, AmIslamic charted a pre-tax profit of RM260.0 million, which translated into respective annualised returns on assets and equity of 2.3% and 27.2% (end-march 2009: 1.7% and 15.7%). Given the 28.3% (annualised) jump in its net financing income and the 23.7% (annualised) decline in financing- AmIslamic Bank Berhad 3

4 loss provisions, the Bank s pre-tax profit recorded an impressive overall expansion of 62.5% (annualised) in 9M FY Mar On this note, AmIslamic s annualised financing-loss expenses as a percentage of average gross financing had edged down to 1.4% as at end-december 2009 (end-march 2009: 1.5%), in line with its improving asset-quality indicators. Sustainable profit performance At the same time, AmIslamic reported a net financing margin of 4.1% (annualised) in 9M FY Mar 2010 (FY Mar 2009: 3.9%), mirroring the lucrative margins generated by its personal financing assets. The earlier decline in the OPR had benefitted AmIslamic as 99.0% of the Bank s financing assets comprised fixed-rate financing. As the economy gains traction in 2010, Bank Negara Malaysia had made its move to normalise interest rates by raising 50- basis-point this year to 2.5% as at May RAM Ratings expects the OPR to be lifted by another 25 to 50 basis point by the end of Although the anticipated rise in the OPR may impinge on AmIslamic s net financing margin given that approximately all of its financing assets are fixed-rate facilities, we expect its profit performance to be sustainable, premised on the anticipated healthy growth of the Bank s financing assets, its initiative in augmenting CASA deposits and its profit-rate hedging. Funding and Liquidity Funding still depends on more costly time deposits Driving deposit growth As at end-december 2009, almost 82.5% of AmIslamic s profit-bearing funding consisted of customer deposits; of this, 83.0% comprised of time deposits and negotiable instruments of deposit. As at the same date, the Bank s low-cost CASA deposits had collectively increased by an annualised 40.7% to RM2.1 billion from RM1.6 billion as at end-march However, AmIslamic s CASA deposits as a proportion of its entire deposit base remained low at 16.3% (end- March: 15.7%), compared to the industry average of 20.7%. Meanwhile, the Bank s financing-to-deposit ( FD ) ratio had eased to 94.3% as at end-december 2009 (end-march 2009: 96.6%). As a group, AmBank has been focusing on enlarging its deposits in the past 2 years. Going forward, although the Bank plans to utilise the Proposed Securities to fund its financing asset growth, AmIslamic intends to maintain its FD ratio at around 90% by continuing to grow its deposits, particularly CASA deposits. Capital adequacy Sound capitalisation The Bank s capitalisation indicators have remained sound vis-à-vis its improved asset quality and better earnings performance. Although AmIslamic s Tier-1 and overall RWCARs had eased slightly to 10.2% and 15.0%, respectively (end- March 2009: 11.2% and 16.7%) as at end-december 2009, we note that this is in AmIslamic Bank Berhad 4

5 line with the growth of its financing assets. Assuming full drawdown of the Proposed Securities to fund the Bank s financing, and assigning a conservative risk-weight of 100% with zero profit accumulation, AmIslamic s overall RWCAR is still expected to remain sound at around 12%. AmIslamic Bank Berhad 5

6 Corporate Information AmIslamic Bank Berhad Date of Incorporation: 14 April 1994 Commencement of Business: Major Shareholders: Directors: Auditor: Listing: Key Management: 1 May 2006 (as an Islamic banking subsidiary) AmBank (M) Berhad (immediate holding company) AMFB Holdings Berhad (penultimate holding company) AMMB Holdings Berhad (ultimate holding company) Tan Sri Azman Hashim Tun Mohammed Hanif bin Omar Tan Sri Datuk Clifford Francis Herbert Dato Larry Gan Nyap Gan Nyap Liow Dato Dr Mahani binti Zainal Abidin Cheah Tek Kuang Ashok Ramamurthy Ernst & Young Not listed Cheah Tek Kuang Ashok Ramamurthy Datuk Mohamed Azmi Mahmood Dato James Lim Cheng Poh Andrew Strain Kerr Ross Neil Foden Datuk Mahdi Murad Datuk Zainal Abidin Haji Mohamed Jamaiyah Mohammed Nor Mohd Nazri Abd Rahman 100% 100% 100% Group Managing Director Deputy Group Managing Director & Group Chief Financial Officer Managing Director, Retail Banking Managing Director, Business Banking Chief Risk Officer Chief Operations Officer Chief Executive Officer/Managing Director, AmIslamic Bank Berhad Head, Sales Management & Development General Manager, Operational Management Senior Manager, Treasury 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) Issuance of 250,000,000 new ordinary shares of RM1.00 each at RM3.14 per share, amounting to RM million. Cumulative Total (RM million) (608.68) * The capital history above pertains to that of the former AmBank Berhad, when it had been the commercial-banking unit of the larger AMMB Holdings Berhad Group. In June 2005, AmBank Berhad transferred its assets and liabilities to the present AmBank (M) Berhad; the latter then carved out its Islamic banking operations to AmBank Berhad (now known as AmIslamic Bank Berhad) on 1 May AmIslamic Bank Berhad 6

7 FINANCIAL SUMMARY AmIslamic Bank Berhad Bank unaudited BALANCE SHEET (RM million) 31-Mar Mar Mar Mar Dec-09 ASSETS Cash & Money At Call 1, , , , , Deposits & Placements With Financial Institutions Securities Purchased Under Resale Agreements Securities Securities Held For T rading Securities Available-For-Sale Securities Held-T o-maturity Gross Financing & Advances 6, , , , , General Financing Loss Reserves Specific Financing Loss Reserves Net Financing & Advances 6, , , , , Statutory Deposits With BNM Investments in Subsidiaries/Associates Other Assets Property, Plant & Equipment TOTAL ASSETS 8, , , , , LIABILITIES Customer Deposits Demand Savings , General/Special Investment 3, , , , , Negotiable Instruments of Deposits Interbank Deposits 3, , , , , Bills & Acceptances Payable Securities Sold Under Repurchase Agreements Other Funding Subordinated Financing & Hybrid Capital Recourse Obligation on Financing Sold to CAGAMAS Other Liabilities TOTAL LIABILITIES 7, , , , , Paid-up Capital Minority Interest Share Premium & Other Reserves Statutory General Reserve Retained Profits/(Accumulated Losses) TOTAL SHAREHOLDERS' FUNDS , , , , TOTAL LIABILITIES & SHAREHOLDERS' FUNDS 8, , , , , COMMITMENTS & CONTINGENCIES 3, , , , , TIER 1 CAPITAL , , CAPITAL BASE , , , , AmIslamic Bank Berhad 7

8 FINANCIAL SUMMARY AmIslamic Bank Berhad Bank unaudited INCOME STATEMENT (RM million) 31-Mar Mar Mar Mar Dec-09 9 months Finance Income Less: Accretion Of Discount/(Amortisation Of Premium Less: Net Finance Income Suspended (12.90) Less: Income Attributable to Depositors (254.79) (265.70) (359.09) (425.97) (256.07) Net Finance Income Non-Finance Income Gross Income Less: Personnel Expenses (67.97) (4.85) (6.17) (6.77) (4.04) Less: Other Operating Expenses (95.86) (138.22) (198.39) (211.74) (179.45) Less: Financing Loss Provisions (153.94) (197.88) (140.00) (105.73) (60.49) Less: Non-Recurring Items Share of results of Associated Companies Pre-Tax Profit/(Loss) Less: Taxation & Zakat (39.71) (45.16) (75.59) (56.67) (70.74) Net Profit/(Loss) Less: Minority Interests Less: Transfer To Statutory Reserves 0.00 (47.39) (43.05) (78.33) (78.39) Less: T ransfer T o Other Reserves (26.36) Less: Dividend (200.00) Post-Appropriation Profit/(Loss) (89.08) AmIslamic Bank Berhad 8

9 FINANCIAL RATIOS AmIslamic Bank Berhad Bank unaudited KEY FINANCIAL RATIOS (%) 31-Mar Mar Mar Mar Dec-09 PROFITABILITY Net Financing Margin 5.71% 4.99% 4.57% 3.88% 4.06% * Non-Financing Income Margin 0.32% 0.39% 0.67% 0.41% 0.31% * Cost To Income 36.51% 29.75% 38.41% 40.65% 36.41% Cost Over Total Average Assets 2.20% 1.60% 2.01% 1.74% 1.59% * Return On Assets 1.76% 1.56% 1.85% 1.70% 2.25% * Return On Equity 18.54% 15.51% 15.24% 15.69% 27.20% * Dividend Payout 0.00% 0.00% 0.00% 0.00% % ASSET QUALITY Gross NPFs Ratio 5.52% 5.07% 2.96% 2.18% 1.79% Net NPFs Ratio 3.97% 2.70% 1.49% 1.29% 1.00% Net NPFs To Total Assets 4.07% 2.67% 1.38% 1.00% 0.75% Specific Financing Loss Provisions For Current Period 2.91% 3.07% 2.20% 1.47% 1.37% * Gross NPFs Coverage 55.91% 76.98% % % % Financing Loss Reserve Coverage 3.08% 3.90% 2.99% 2.42% 2.23% General Financing Loss Reserve Coverage 1.50% 1.51% 1.52% 1.53% 1.45% LIQUIDITY & FUNDING Liquid Asset Ratio 23.48% 31.41% 26.93% 28.55% 28.38% Interbank Deposits To Total Profit Bearing Funds 41.00% 31.64% 16.57% 11.46% 10.19% Customer Deposits To Total Profit Bearing Funds 55.96% 57.87% 73.37% 80.51% 84.53% Financing T o Deposits Ratio % % % 96.61% 94.30% Financing T o Stable Funds Ratio % 95.25% 85.20% 77.75% 80.18% CAPITAL ADEQUACY Shareholders' Funds T o T otal Assets 9.03% 11.05% 13.04% 9.11% 7.59% Tier 1 Risk Weighted Capital Adequacy Ratio 7.90% 8.67% 10.32% 11.22% 10.15% Overall Risk Weighted Capital Adequacy Ratio 9.38% 14.45% 16.28% 16.65% 14.99% Internal Rate Of Capital Generation 15.45% 11.25% 10.37% 12.37% 0.41% * Note : * annualised AmIslamic Bank Berhad 9

10 FINANCIAL RATIOS AmIslamic Bank Berhad Bank KEY FINANCIAL RATIOS FORMULAE PROFITABILITY Net Financing Margin Net Finance Income / Average Total Assets Non-Financing Income Margin Non-Finance Income / Average Total Assets Cost To Income (Personnel & Other Operating Expenses) / Gross Income Cost Over Total Average Assets (Personnel & Other Operating Expenses) / Average Total Assets Return On Assets Pre-T ax Profit/(Loss) / Average T otal Assets Return On Equity Pre-T ax Profit/(Loss) / Average Shareholders' Funds Dividend Payout Dividends / Net Profit/(Loss) ASSET QUALITY Gross NPFs Ratio (T otal Non-Performing Financing - Finance-Income-In-Suspense) / (Gross Financing - Finance-Income-In-Suspense) Net NPFs Ratio (T otal Non-Performing Financing - Specific Financing Loss Reserves - Finance-Income-In-Suspense) / (Gross Financing - Specific Financing Loss Reserves - Finance-Income-In-Suspense) Specific Financing Loss Provisions Specific Financing Loss Provisions For T he Period / Average Gross Financing For Current Period Gross NPFs Coverage General & Specific Financing Loss Reserves (B/S) / (Total Non-Performing Financing - Finance-Income-In-Suspense) Financing Loss Reserve Coverage General & Specific Financing Loss Reserves (B/S) / (Gross Financing - Finance-Income-In-Suspense) General Financing Loss Reserve Coverage General Financing Loss Reserves / (Gross Financing - Specific Financing Loss Reserves - Finance-Income-In-Suspense) Gross Financing Gross Financing Include Financing Sold T o CAGAMAS LIQUIDITY & FUNDING Liquid Asset Ratio Liquid Assets / Customer Deposits & Short-Term Funds Financing To Deposits Ratio Net Financing / Customer Deposits Financing To Stable Funds Ratio Net Financing / (Shareholders' Funds + Total Profit Bearing Funds + General Financing Loss Reserves - Interbank Funding - Property, Plant & Equipment - Investments in Subsidiaries/Associates) Short-T erm Funds Interbank Deposits + Bills & Acceptances + Securities Sold Under Repos Liquid Assets Cash & Short-T erm Funds + Securities Purchased Under Repos + Deposits & Placements With Financial Institutions + Quoted Securities (Excluding Securities Held-T o-maturity) T otal Profit Bearing Funds Customer Deposits + Interbank + Bills & Acceptances + Securities Sold Under Repos + Borrowing + Supplementary Capital CAPITAL ADEQUACY Internal Rate Of Capital Generation (Net Profit/(Loss) + Extraordinary Income - Dividend + General Financing Loss Provision) / Average Shareholders' Funds AmIslamic Bank Berhad 10

11 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 11

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 12

13 Published by RAM Rating Services Berhad Reproduction or transmission in any form is prohibited except by permission from RAM Ratings. Copyright 2010 by RAM Ratings 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. AmIslamic Bank Berhad 13