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Issuer Credit Research

Issuer Summary: AFFIN Bank Berhad

Issuer: Affin Bank | Document: Issuer Summary | Date: 2026-05-04

1. Credit View and Monitoring Focus

AFFIN Bank Berhad’s credit can be summarized as that of “a Malaysian mid-tier bank where profitability and asset quality are improving at the same time, but whose franchise depth still lags the leading banks.” As of May 4, 2026, the latest public financial information that can be clearly confirmed on AFFIN’s IR website is its FY2025 results, announced on February 26, 2026. The current investment view should therefore be built primarily around FY2025. FY2025 was, overall, a set of results that confirmed improvement, with profit before tax reaching a record RM755.7m, loans and deposits both expanding, and the impaired loan ratio declining.

The first credit impression is that AFFIN is at least not currently a bank with a stressed balance sheet. Loans and financing expanded to RM79.5bn, customer deposits to RM80.2bn, and total assets to RM124.1bn. On capital, the group reported a CET1 ratio of 13.4%, Tier 1 ratio of 14.8%, and total capital ratio of 17.3%; on liquidity, its LCR was 162.4%. All of these are comfortably above regulatory minimum levels. In addition, the gross impaired loan ratio improved from 1.94% at end-FY2024 to 1.64% at end-FY2025, suggesting that the improvement is not merely balance-sheet expansion, but expansion accompanied by better quality. Looking only at these financial contours, the bank’s basic credit profile is well within investment-grade territory.

At the same time, the reservations against overvaluing AFFIN are also clear. The largest issue is the quality of its deposit funding structure, namely the decline in the CASA ratio. In FY2025, customer deposits themselves increased, but the CASA ratio fell from 30.4% in FY2024 to 25.0% in FY2025. This suggests that although the bank has been able to secure funding volume, the quality of funding may have deteriorated. Credit investors should take this seriously because a weaker deposit mix can lead to future NIM pressure, greater vulnerability to price competition, and lower funding stickiness in stress periods. AFFIN’s current strength is not based on a lack of capital or liquidity pressure, but on improving operating indicators. Whether that improvement can be converted into long-term franchise strengthening ultimately depends on the funding structure, including CASA.

Therefore, the closest description of the investment view is “positive but cautious.” AFFIN is an improving mid-tier bank. Its current financial metrics are stable, and it has capital and liquidity headroom. However, in terms of franchise strength, it is not on par with Malaysia’s top-tier banks, and its spread should therefore not be priced extremely close to those of the leading banks. The core investment message is that AFFIN is not “already a strong bank,” but rather “a bank that is becoming stronger,” and whether that strengthening is genuine should be tested over the next one to two years through its deposit mix, credit costs, and quality of earnings.

2. Business Snapshot: What is AFFIN?

AFFIN Bank Berhad is a Malaysia-based banking group, best understood as a domestic financial group comprising conventional banking, Islamic banking, investment banking, treasury, and related financial services. The business structure shown in the 2024 integrated report identifies Group Community Banking, Group Enterprise Banking, Group Corporate Banking, Group Treasury, AFFIN Islamic Bank Berhad, and AFFIN Hwang Investment Bank Berhad as the main components. This means that AFFIN is an integrated financial group covering a certain range of activities from retail to SMEs, mid-sized companies, large corporates, and capital markets-related services.

What matters from a credit perspective is that AFFIN is fundamentally a bank-centered issuer, rather than a complex diversified conglomerate. Community Banking forms the bank’s stable customer interface and deposit funding base through mortgages, auto loans, cards, personal deposits, and other products. Enterprise Banking provides lending, payments, and commercial banking relationships to SMEs and mid-sized companies, which have a broad footprint in the Malaysian economy. Corporate Banking handles lending, working capital, project finance, and transaction banking services for large corporates, while Treasury supports group earnings and balance-sheet management through ALM, interest rate and foreign exchange-related income, liquidity management, and investment portfolio management. The Islamic banking subsidiary provides access to Shariah-compliant products, which are significant in the Malaysian market, and the investment banking subsidiary forms an earnings base in capital markets, wealth management, and securities-related businesses.

What this shows is that AFFIN’s earnings structure is not merely “collect deposits and lend them out,” but that it has the major functions required of a domestic bank. This is credit positive. Compared with a bank excessively dependent on a single business or customer segment, AFFIN should have greater earnings absorption capacity and flexibility against economic cycles, policy changes, and intensified competition. That said, this means that it has “sufficient breadth,” not that it has strong market dominance in each area. AFFIN’s strength is not overwhelming share across the board, but how far it can improve earnings quality as a mid-tier bank with the necessary business portfolio.

From a business-model perspective, AFFIN can be understood as a bank with three earnings sources. The first is core spread income from mortgages, auto loans, SME lending, corporate lending, and related activities. The second is non-interest income, including fees, commissions, foreign exchange-related income, and payments-related income. The third is treasury and market-related income. Because AFFIN does not have as strong a low-cost deposit base or overseas network as the top-tier banks, its credit analysis requires separating which of these three earnings sources is driving the improvement, which parts are sustainable, and which parts are volatile.

3. What Changed Recently

The most important recent change in understanding AFFIN is the shareholder-structure change announced as completed on November 27, 2024. According to AFFIN’s disclosure, Sarawak government-linked SG Assetfin Holdings increased its stake to 31.25%, LTAT’s stake declined to 22.01%, and Boustead Holdings exited as a shareholder. This has meaning beyond a simple share transfer because it gives market participants a new context: a bank with increased state government-linked involvement. In bank credit, not only the presence or absence of an explicit guarantee, but also institutional links and the formation of support expectations can affect investor psychology and rating approaches.

However, it would be premature to treat this shareholder change as an automatic support guarantee. What actually matters for credit is the track record of capital injections, the strength of policy roles, the relationship with regulators, and the strategic intent of the state government side; a large shareholding alone does not immediately create credit enhancement. Still, it is at least clear that AFFIN now has a structure with greater institutional implications than a purely private mid-tier bank, and this should not be overlooked in the context of future capital policy, growth strategy, and funding access.

The second major change was Moody’s first international rating assignment on May 7, 2025. The assignment of A3 / Stable and Standalone Baa2 to AFFIN Group translated an improvement already known in the local market into a language that international investors can understand. Particularly for a mid-tier bank such as AFFIN, a local rating alone may not provide global investors with a sufficient comparison axis. Obtaining a Moody’s rating can be seen as a further step forward in terms of external confidence and market access.

Third, the FY2025 results announced on February 26, 2026 showed that the improvement trend was not a quarterly coincidence, but a full-year trend. PBT was RM755.7m, total assets were RM124.1bn, loans and financing were RM79.5bn, customer deposits were RM80.2bn, the gross impaired loan ratio was 1.64%, and the LCR was 162.4%. It is easy to assess positively that profitability, growth, soundness, and liquidity did not deteriorate simultaneously. On the other hand, the FY2025 results materials show that deposits increased while the CASA ratio declined sharply. This is an important internal signal indicating that while headline performance looks good, it does not guarantee the quality of that performance into the future.

In addition, AFFIN’s disclosures and IR-site information during 2025 suggest that management is focused not only on balance growth, but also on digitalization, fee income, diverse partnerships, Islamic finance, wealth management, and customer experience improvement. For example, the 2025 press releases include Google Pay integration, the evolution to AffinAlwaysX, cashless SME support, a Shariah-compliant salary advance product, and partnerships by the investment banking subsidiary. These are not immediate credit indicators, but for a domestic bank facing severe margin competition, they should be read as groundwork for strengthening deposits, payments, and customer interfaces, and for improving future fee income and funding stability.

This point has significance beyond a simple management slogan. When a mid-tier bank competes against top-tier banks, competing purely on price tends ultimately to disadvantage it on both deposit cost and loan yield. Therefore, increasing the “reasons why customers keep using the bank,” such as digital channels, payment functions, daily usage frequency, Islamic finance, wealth products, and corporate payment platforms, ultimately links to improved deposit stickiness and fee income. AFFIN’s various partnerships and app renewal in 2025 are more useful from a credit perspective if interpreted less as immediate earnings contributors and more as moves aimed at rebuilding sticky customer relationships.

4. Industry Position and Franchise Strength

AFFIN’s industry position is that of “a mid-tier bank with a clear presence” within Malaysia’s banking system. Compared with the largest banks, it lags in nationwide deposit share, brand penetration, corporate pricing power, overseas network, and the depth of low-cost deposits. At the same time, it has sufficient business breadth and institutional links that it cannot be described as a mere niche player. The key credit point is that this intermediate positioning itself is AFFIN’s defining characteristic.

In Malaysia’s banking industry, larger banks tend to have deeper deposit bases, more diversified fee-income sources, greater capacity to sustain digital investment, and higher earnings absorption capacity in economic downturns. Therefore, even if a mid-tier bank is also investment grade, its franchise should be viewed with one additional degree of caution compared with top-tier banks. AFFIN is a typical example. Changes in deposit structure, NIM volatility, and increases in credit costs should be expected to feed through to earnings more quickly than at leading banks.

That said, it would also be inappropriate to conclude that AFFIN’s franchise is fragile. It has Community Banking, Enterprise Banking, Corporate Banking, Islamic Banking, Treasury, and Investment Banking, and its customer base is diversified across individuals, SMEs, large corporates, and investors. This breadth is sufficient for a mid-tier bank. Particularly in a market such as Malaysia, where Islamic finance is important, having Islamic banking capabilities itself contributes to franchise maintenance. In addition, the presence of a state government-linked shareholder and LTAT makes it easier to see AFFIN as an institution that is “harder to separate institutionally” than a purely private bank.

Recent digital-related disclosures also provide a useful reference point in assessing franchise quality. According to snippets from the 2025 annual report, Retail Internet Banking had 682,606 registered users, up 13% year on year, and 61% had activated AffinAlwaysX. Online channel transactions are also said to have reached 44.71m. These numbers do not yet allow us to say that AFFIN has a digital ecosystem on a scale capable of competing with the largest banks, but they at least show its effort to maintain deposits, payments, and usage frequency through digitalized customer interfaces. From a credit perspective, digital is not an objective in itself; it should be assessed by whether it leads to a stickier customer base, lower-cost deposits, and improved operating efficiency. In that sense, AFFIN’s initiatives are directionally appropriate.

In short, the franchise assessment of AFFIN settles at the level of “mid-tier, but with the necessary functions in place and a certain degree of support expectation.” It does not have the overwhelming advantages of the largest banks, but it is not a bank weakly dependent on a single area either. This intermediate position defines both the appeal and the limits of AFFIN’s credit.

5. Segment Assessment

Community Banking is one of the most important segments in assessing AFFIN’s stability. Through mortgages, auto loans, cards, personal deposits, and payment functions, it plays the role of creating continuing customer interfaces. In FY2025, AFFIN disclosed 7.3% growth in mortgages, 4.4% growth in auto loans, and 10.0% loan growth for Community Banking overall. This indicates that the bank has been able to maintain and expand balances in retail. At the same time, given the decline in the CASA ratio, it cannot yet be said that growth in customers or lending is sufficiently translating into low-cost deposits. The true strength of Community Banking lies not in loan growth itself, but in how far the bank can entrench low-cost deposits and fee income.

Another issue in Community Banking is the nature of the assets. Compared with large corporate exposures, mortgages and auto loans have smaller loss impact per exposure and are preferable from a portfolio diversification perspective. However, in periods of rising rates or household pressure, they can gradually feed through into delinquency rates and restructuring pressure. AFFIN’s currently low impaired loan ratio is positive, but retail soundness often deteriorates with a lag to the economic cycle. Therefore, Community Banking should be viewed as “currently stable, but a portfolio that can reflect household pressure during an economic slowdown.”

Enterprise Banking lies at the center of AFFIN’s growth story. FY2025 loan growth of 23.9% was particularly high, and this segment is likely to have contributed significantly to the improvement in profitability. For a Malaysian mid-tier bank, SME and mid-sized corporate lending is attractive in terms of securing yield, cross-selling, and strengthening local relationships. Particularly in an environment where price competition in large corporate lending is intense, pursuing growth in the mid-sized and SME segment is rational in itself.

However, from a credit investor’s perspective, Enterprise Banking is also the area that requires the closest attention. A high-growth segment can support earnings in a favorable environment, but credit costs can also rise more quickly in an economic slowdown. SMEs and mid-sized companies are vulnerable to funding conditions, raw material prices, external demand, foreign exchange, policy changes, and supply chains, and in many cases do not have as much financial resilience as large corporates. The current improvement in the GIL ratio is positive, but whether the high growth in Enterprise Banking remains high-quality growth several years later is a theme that still needs to be tested.

Corporate Banking plays a balancing role within AFFIN. FY2025 loan growth was 6.0%, milder than in Enterprise Banking. This may be a healthy sign, in the sense that AFFIN is not forcing balance growth in large corporate lending, where price competition is intense. Large corporate lending tends to have more stable credit costs, but it also has issues of price competition and large exposure concentration. For a mid-tier bank such as AFFIN, Corporate Banking should not be a “place to display scale,” but a place to build selected exposures. The current growth rate appears consistent with that direction.

Treasury is an important segment that smooths AFFIN’s earnings and supports liquidity and ALM. In mid-tier banks, because core spreads and fee income are not as deep as at the largest banks, Treasury’s contribution can have a visible impact on the appearance of results. Indeed, the FY2025 results release also emphasized that NIM expansion and an increase in fee-based income contributed to the rise in 4Q2025 profit. The fact that Treasury is functioning well is positive in itself, but investors should not equate Treasury-led earnings improvement with an improvement in the core deposit and core customer franchise. Treasury should be evaluated as a complementary function, while the core of the credit remains the deposit franchise and core lending quality.

Investment Banking and Wealth Management are auxiliary lines of earnings diversification for AFFIN. The investment banking subsidiary and wealth management are important over the long term in reducing dependence on spreads, but at present they are not large enough to define the credit story of the overall group. Rather, their credit significance should be viewed as cross-selling to the bank’s customers, expansion of the fee-income base, and brand maintenance.

Taking the segments as a whole, AFFIN appears to be relying on Enterprise Banking as the main driver of growth, Community Banking as the base of stability, and Treasury as an earnings complement. This structure is rational, but it also shows “where the bank is most fragile.” If the quality of the fast-growing Enterprise Banking segment and the Community Banking segment that symbolizes the deposit franchise deteriorates, Treasury alone will not be enough to support the entire credit story. Therefore, investors should focus not merely on the group’s aggregate profit amount, but on how sustainable the role allocation across segments is.

6. Financial Profile

AFFIN’s financial profile has been on a clear improving trend since 2023. According to Financial Highlights, from FY2020 to FY2025, total assets expanded from RM69.5bn to RM124.1bn, loans and financing from RM45.5bn to RM79.5bn, and customer deposits from RM49.9bn to RM80.2bn. This is a fairly clear expansion of the balance sheet. Growth at a mid-tier bank is often accompanied later by deterioration in credit costs, but at least based on public figures through end-FY2025, AFFIN has achieved both expansion and improved soundness at the same time.

The trend in profit levels is also important. Profit before tax was RM518m in FY2023, RM701m in FY2024, and RM755.7m in FY2025. The recovery from 2023 to 2024 was substantial, and the improvement was maintained and built upon in 2025. What matters for credit investors is not that profit jumped once, but how much that profit strengthens capital accumulation, provisioning capacity, and future stress resilience. In AFFIN’s case, the FY2025 profit level is sufficiently positive for a mid-tier bank, but it still does not imply a level of robustness where high profitability would automatically be maintained even in a downturn.

In considering earnings quality, the descriptions in the FY2025 results release of “higher net income,” a “47.4% surge in operating profit,” and the contribution in 4Q2025 from NIM expansion and a 30.5% increase in fee-based income are suggestive. They indicate that AFFIN’s profit improvement was not created solely by provision write-backs, but reflected improvement in the earnings structure itself. At the same time, they also mean that contributions from non-interest income and market-related income cannot be ignored, and that the contents of profit improvement need to continue being separated into “improvements derived from core deposits and core lending” and “environmental or Treasury factors.”

Asset quality is the clearest positive factor for AFFIN at present. The FY2025 gross impaired loan ratio was 1.64%, improving from 1.94% in FY2024. Moreover, because the ratio improved while loan balances were also increasing, this was not simply the result of a shrinking denominator. In addition, Loan Loss Coverage was disclosed at 75.7% and Loan Loss Reserve at 121.3%. It would be difficult to call this “highly conservative,” but at least considering the current impaired loan level, AFFIN has a sufficiently practical cushion.

The point to note is that in a period of improving credit costs, investors can easily assume that the current low GIL level is normal. In reality, a GIL ratio of 1.64% is quite a good condition for AFFIN, and it is too early to judge whether this can be treated as a medium-term new normal. At mid-tier banks, the quality of SME and mid-sized corporate loans that led growth can surface with a one- to two-year lag. Therefore, from a credit perspective, the low GIL should not be treated as a fixed assumption, but rather as “currently good, with room for future normalization.”

On the cost ratio and efficiency, the publicly available snippets did not allow confirmation of all detailed ratio series, but the FY2025 release’s reference to a large increase in operating profit at least indicates that the bank was not simply experiencing one-sided cost inflation. Given the continuation of initiatives such as digital investment, brand investment, and branch repositioning, AFFIN’s cost structure should continue to require a certain amount of upfront investment. Therefore, the extent to which cost-ratio improvement can continue, and whether that improvement is consistent with the quality of the top line, will be future focus areas.

Funding is the most difficult part of the overall financial profile to interpret. Deposit balances themselves increased and exceeded loans, so funding quantity is not a problem. However, the decline in the CASA ratio suggests weakness in funding quality. Having enough deposits and having enough cheap deposits are separate issues. For FY2025, the appropriate assessment is that AFFIN passes on the former, but remains under observation on the latter.

Overall, AFFIN’s financial profile is positive in that “quantitative expansion,” “profit improvement,” “asset-quality improvement,” and “capital and liquidity headroom” can all be confirmed at the same time. However, it leaves a clear yellow light in one area: the quality of the deposit mix. Therefore, further analysis should focus less on increases or decreases in the absolute profit amount and more on changes in deposit mix and margin quality.

7. Structural Considerations for Bondholders

The first structural point to confirm for AFFIN is that the listed parent company itself is the operating bank, and not a typical non-operating holding company. This is relatively favorable for senior bond investors. In a structure where only the holding company is listed and the main assets sit in lower-level banking subsidiaries, holding-company creditors can be dependent on upstream dividends and capital transfers, and structural subordination can become an issue. In AFFIN’s case, this typical holdco subordination issue is considered relatively small.

That said, it would not be correct to say that there are no structural issues. The group includes an Islamic bank, an investment bank, and other related companies, each of which is a separate entity from a regulatory and legal perspective. Therefore, even if the group as a whole has capital and liquidity headroom, the extent to which it is available in each entity requires separate confirmation. Still, at least when considering senior AFFIN bank credit, there is limited need to incorporate a large complex holdco discount.

The next important point is the distinction from capital securities. The IR ratings page shows lower ratings for AT1 and Tier 2 instruments than for the bank’s FI rating. This is natural, reflecting subordination, loss-absorption terms, and regulatory non-viability mechanisms. In other words, even if AFFIN’s senior unsecured instruments can be viewed favorably, AT1 and Tier 2 should not be assessed with the same strength. For senior bonds, what matters is opco proximity and the solvency of the bank itself. For capital securities, investors also need to examine coupon discretionary risk, write-down / conversion risk, and the reasonableness of call expectations.

In addition, in the broader context of Malaysia’s banking sector, regulatory supervision, domestic financial stability policy, and the presence of a local investor base also provide some comfort for senior bonds. However, this is not equivalent to an explicit public guarantee. AFFIN is supported by a combination of the bank’s own solvency, sufficient regulatory capital, customer deposit base, and support expectations. It would be a mistake to take comfort only from bond structure and ignore deterioration in the business.

8. Capital Structure, Liquidity and Funding

Capital structure and liquidity are the most investable parts of AFFIN’s current profile. The FY2025 group CET1 ratio of 13.4%, Tier 1 ratio of 14.8%, and total capital ratio of 17.3% indicate that there is limited need to worry about capital shortfall at present. Even for a mid-tier Asian bank, these are comfortably sound ranges, and they are at least not at a level where ordinary economic fluctuations or credit-cost normalization would immediately become impossible to absorb.

The LCR of 162.4% also provides clear comfort. LCR is important in assessing resilience to short-term liquidity shocks, and at this level, AFFIN is well above the regulatory minimum of 100%, with a thick buffer against short-term funding outflow scenarios. The fact that customer deposits of RM80.2bn exceed loans and financing of RM79.5bn is also favorable in terms of overall funding quantity.

However, strong capital and liquidity are not the same as strong funding quality. This is AFFIN’s most important issue. The CASA ratio declined from 30.4% in FY2024 to 25.0% in FY2025. Even if the absolute CASA amount was maintained at RM20.01bn, the fact that the ratio fell sharply relative to overall deposit growth suggests that dependence on higher-cost deposits or time deposits may have increased. This could become a pattern in which future margin and competitiveness are eroded in exchange for achieving balance growth.

CASA is so important because low-cost deposits not only lower funding costs, but also reflect a bank’s operating interface, payment functions, and customer stickiness. Banks with deep CASA often not only have low funding costs, but also have deep customer relationships through payment accounts and day-to-day transaction relationships. Conversely, banks with weak CASA are more likely to face higher costs to maintain deposits when price competition intensifies. Therefore, AFFIN’s CASA ratio decline is not merely a cosmetic deterioration, but a signal that raises questions about franchise quality.

Moreover, a decline in the CASA ratio can easily link to other credit weaknesses. For example, if deposit costs remain high, NIM will be pressured. If NIM is pressured, the bank will depend more on building fee income or securing lending spreads. If competition intensifies or credit costs rise in SME and mid-sized corporate lending at that point, earnings can be damaged more than headline figures suggest. In other words, CASA is not a standalone KPI, but a hub-like indicator connecting earnings quality, growth quality, and stress resilience. This is why CASA should be treated as important when assessing AFFIN.

Viewed from another angle, AFFIN has good solvency, but its funding franchise still has significant room for improvement. A high capital ratio shows the bank’s room to absorb shocks. A low CASA ratio, on the other hand, may indicate an earnings structure that is more likely to generate shocks in the first place. It is not enough to say that everything is fine because capital is high; the coexistence of strong capital and a weaker funding mix is a defining feature of AFFIN today.

Future capital policy should also be monitored. The FY2025 release includes comparative notes on the proposed dividend and bonus issue. Capital headroom allows shareholder returns, but given growth investment, digital investment, and future credit-cost volatility as a mid-tier bank, an excessively aggressive capital allocation would not be desirable. The ideal path for AFFIN is to maintain sufficient CET1 while improving funding quality and linking it to higher-quality growth.

9. Rating Agency View

AFFIN’s ratings express its current credit positioning quite succinctly. According to the Credit Ratings page on the IR site, Moody’s assigns AFFIN Bank Group an International Long-term Rating of A3, Standalone Rating (BCA) of Baa2, and Stable Outlook. RAM Ratings Services Berhad assigns AFFIN Bank Berhad a Long-term Financial Institution Rating of AA3, Short-term P1, and Stable Outlook. These mean that AFFIN is sufficiently investment grade as a bank, and that its current financial profile and support expectations are being recognized to a certain extent.

The combination of Moody’s A3 and Standalone Baa2 is particularly suggestive. Given a Standalone rating of Baa2, the bank itself is viewed as having investment-grade credit strength. On the other hand, the gap to A3 suggests that institutional support expectations or group/system positioning may be incorporated. This is very important when assessing AFFIN. It should be understood not simply as “A3 because the standalone bank is strong,” but as “a structure in which investors can readily take external support into account, in addition to standalone soundness.”

RAM’s domestic rating of AA3 / P1 also indicates that AFFIN is positioned as a stable financial institution at least within the domestic market. Of course, domestic and international ratings cannot be compared directly, but the fact that both show stable investment-grade views is a comfort factor for credit investors.

However, investors should not rely excessively on the ratings themselves. In AFFIN’s case, even if the current rating level is reasonable, its future direction is likely to depend on funding mix and earnings quality. If CASA does not recover and rapid growth in SME and mid-sized corporate lending later rebounds into higher credit costs, pressure on the standalone view could increase. Conversely, if improvement in the deposit mix and stability in credit costs continue, the stability of the current rating will become more certain. Ratings are useful as a summary of the current position, but they do not guarantee the future.

10. Credit Positioning

How should AFFIN be positioned within the Asian bank credit investment universe? The conclusion is that AFFIN is not a “defensive super-top-tier bank,” but rather a “mid-tier bank credit where investors evaluate an improving trend.” What investors should expect is not overwhelming stability comparable to the leading banks, but relative value that can be obtained as long as the improvement continues.

This positioning rests on three assumptions. First, current solvency and liquidity provide sufficient comfort. Second, asset quality is currently good. Third, the shareholder / support narrative has become clearer than before. Because of these three factors, AFFIN has become a relatively investable credit among mid-tier banks.

However, even within investment grade, AFFIN should not be treated on the same footing as Malaysia’s leading banks or the top banks in the region. Such banks usually have deeper CASA, more diversified fee income, stronger brands, broader customer bases, and higher stress earnings capacity. For AFFIN to move closer to the leading banks, simply increasing profit is not enough; it must improve the quality of its funding structure itself.

Therefore, AFFIN is “an understandable mid-tier improving credit when investors are being paid spread,” and can easily become “a pass candidate if priced the same as higher-quality banks.” In the context of credit investment, this difference matters. The issue is not whether the bank is good or bad, but what type of strength it has and what type of risk it still retains. AFFIN’s strengths currently lie in the clarity of its improvement direction and the visibility of institutional support.

Put more directly, AFFIN is not “a bank vulnerable to bad news,” but “a bank that should not be treated as top tier on good news alone.” Based only on currently available public information, it is clearly investment grade and on an improving trend, so it can be considered positively as a credit. However, for the future improvement story to be genuine, the quality of deposits, actual use of the digital base, credit quality in SME and mid-sized corporate lending, and sustainability of non-interest income all need to progress at the same time. In other words, AFFIN is both “a bank with few current problems” and “a bank where execution over the next several quarters will directly affect its valuation.”

11. Key Credit Strengths and Constraints

AFFIN’s first strength is that the direction of its public financials is neatly aligned. Profit improved from FY2023 to FY2025, loans and deposits increased, the impaired loan ratio declined, and capital and liquidity are sufficient. The foundation of credit lies not only in “the absence of bad things,” but in “good things not deteriorating simultaneously.” AFFIN currently satisfies that condition.

The second strength is that the group’s business composition is not highly skewed. Because it has Community Banking, Enterprise Banking, Corporate Banking, Islamic Banking, Treasury, and Investment Banking, it is not a credit dependent on a single product or customer segment. This has the effect of diversifying earnings volatility and asset concentration risk to some extent.

The third strength is the institutional context. The increase in the stake held by the Sarawak government-linked shareholder, LTAT’s remaining presence, and the acquisition of an international rating from Moody’s make it harder for investors to view AFFIN as a completely isolated private mid-tier bank. This is, of course, not an explicit guarantee, but such an institutional background cannot be ignored in credit markets.

On the other hand, the constraints are equally clear. First, the franchise remains mid-tier, and AFFIN is likely to be inferior to top-tier banks in pricing competitiveness and deposit competitiveness. Second, the weakness in the funding mix shown by the decline in the CASA ratio directly affects future earnings quality. Third, the Enterprise Banking segment, which showed the highest growth, could become the starting point for future increases in credit costs. Fourth, the earnings improvement has not yet been tested through a full economic cycle or credit normalization.

For this reason, AFFIN’s strengths and constraints are not simply divided into “good points” and “bad points,” but are two sides of the same story. In other words, because it has substantial room for improvement, it can grow; but the presence of substantial room for improvement also means that it is not yet a fully formed franchise. Investors should evaluate AFFIN on the premise of this duality.

12. Downside Scenarios and Monitoring Triggers

AFFIN’s downside is not a dramatic failure scenario in which the currently high capital ratios suddenly disappear, but more realistically a scenario in which weakness in earnings quality gradually becomes apparent. The most typical case would be one where CASA does not recover, dependence on high-cost deposits continues, NIM is pressured, and credit costs normalize in Enterprise Banking and parts of retail at the same time. In such a case, PBT could slow more quickly than headline appearances suggest.

The second downside is the issue of growth quality. The fact that lending is increasing is positive in itself, but if the composition is too heavily skewed toward SMEs and mid-sized companies, the room for impaired loans to emerge during an economic slowdown increases. Particularly at mid-tier banks, the vintages of new growth can deteriorate with a lag, so it is dangerous to treat the current GIL ratio of 1.64% as a future baseline.

The third downside is franchise competition. If leading banks continue to launch aggressive price competition backed by strong CASA and digital platforms, AFFIN could face pressure from three directions: deposit costs, fee competition, and loan pricing. Such pressure weakens medium-term earnings power rather than short-term solvency, which makes it more troublesome for credit investors.

The fourth downside is overvaluation of the support narrative. The presence of a state government-linked shareholder and the relationship with LTAT are positive factors, but it is dangerous to assume that this alone means support will be provided in every situation. Explicit support and expected support are different. Therefore, investors should use the support story as an upside buffer, not as a reason to justify standalone weakness.

The monitoring items are clear. First, the CASA ratio and CASA balances. Second, the gross impaired loan ratio, LLC, and LLR. Third, the breakdown of loan growth, especially the growth of Enterprise Banking. Fourth, CET1, Tier 1, total capital ratio, and LCR. Fifth, changes in the views of rating agencies. Sixth, whether the FY2025 improvement continues from 1Q2026 onward. If several of these deteriorate at the same time, the current assessment of AFFIN as an “improving mid-tier bank” will need to be revisited.

The important point is that AFFIN’s downside is not the type in which the bank “immediately becomes dangerous,” but the type in which “it becomes clear later that the current improvement was shallower than expected.” In this type of credit, warning signs often appear first not in the capital ratio, but in weakening funding mix and earnings quality. Therefore, when monitoring AFFIN, investors should focus less on dramatic events and more on gradual changes in the deposit mix and the contents of earnings.

13. Short Summary & Conclusion

AFFIN Bank Berhad is a Malaysian mid-tier banking group with conventional banking, Islamic banking, investment banking, and treasury operations. The improvement in FY2025 profitability and asset quality, together with capital and liquidity headroom, is positive. On the other hand, the bank does not have as deep a franchise as the leading banks, and the decline in the CASA ratio makes it harder to assess funding quality and earnings sustainability. The direction is positive but cautious, and AFFIN should be viewed not as “already a strong bank,” but as “a bank that is becoming stronger.” Investors should monitor the CASA ratio, deposit mix, growth quality in Enterprise Banking, credit costs, capital ratios, and the repeatability of the FY2025 improvement.

14. Sources

Key primary sources:

Unconfirmed / pending: