RAM Ratings has affirmed the respective AA3/Stable and A1/Stable ratings of AEON Credit Service (M) Berhad's (AEON Credit or the Group) Senior and Subordinated Sukuk Wakalah Programme as well as the P1 rating of its RM1.0 bil Islamic Commercial Papers Programme. 

The affirmation is premised on the sustained resilience of the Group's credit metrics, especially asset quality and profitability indicators, through economic cycles. We have also factored in our expectation of extraordinary support from AEON Co., Ltd  the Group's ultimate parent  and AEON Financial Service Co., Ltd. (AFS), its immediate holding company. AEON Co., Ltd is a prominent Japan-based retail and financial services group. We are confident that the Group will remain a notable player in the consumer lending segment, especially in motorcycle financing. Its investment in a digital bank together with AFS should complement its existing business, although not expected to contribute significantly in the near term.

AEON Credit has a consistently strong track record of managing its asset quality despite a sizeable exposure to non-prime borrowers. AEON Credit concluded FY Feb 2023 with a gross impaired financing (GIF) ratio of 2.9% (FY Feb 2022: 2.7%). The higher ratio was mainly driven by the personal financing and motorcycle financing segments, where deterioration was predominantly associated with lower-income and younger borrowers. The Group's GIF ratio may weaken further as inflationary pressure weighs on borrowers' debt servicing ability but should remain manageable. GIF coverage ratio was still sound at 252% as at end-February 2023.

Benefiting from a 9.9% growth of its receivables base and wider net interest margins, AEON Credit's pre-tax profit grew to RM547.0mil in FY Feb 2023 (FY Feb 2022: RM526.8 mil). A lucrative net interest margin (three-year average: 11.1%) afforded the Group ample headroom to absorb a heftier credit cost of 2.6% (FY Feb 2022: 1.5%). The Consumer Credit Act, expected