Baiduri Bank announces new SGD 3Y (3.15% IPG) senior unsecured notes

• Baiduri Bank Sendirian Berhad ("Baiduri") intends to issue new SGD benchmark-sized 3-year senior unsecured notes, with initial price guidance ("IPG") of 3.15% area. The notes will be issued under Baiduri's USD2B Euro Medium Term Note programme, with settlement on 26 October 2026 and maturity on 26 October 2029. Net proceeds will be used for funding and general corporate purposes. The notes are expected to be rated A- by S&P, in line with Baiduri's issuer rating of A- (Stable), a rating it has held for four consecutive years. As Baiduri has yet to publish its 2026 financial statements, the results and asset quality figures in this note are for FY25 (year ended 31 December 2025), supplemented by its unaudited Pillar 3 disclosure as of 30 June 2026 for capital.

• Baiduri is 75% owned by Baiduri Holdings and 25% owned by Darussalam Assets, the Brunei government's investment holding company under the Ministry of Finance and Economy. Baiduri is also designated a Domestic Systemically Important Bank (D-SIB) in Brunei, meaning its failure would cause significant disruption to the country's financial system. Taken together, the state shareholding and D-SIB status point to a high likelihood of government support in times of stress. This support is implicit rather than guaranteed, however, so bondholders ultimately rely on Baiduri's own credit.

• Established in 1994, Baiduri is one of the largest financial groups in Brunei, with total assets of BND5.0B (~USD3.9B) at end-2025. It operates across institutional and corporate banking, business (SME) banking, retail banking, consumer financing through wholly owned Baiduri Finance (Brunei's leading auto finance company), and investment services through Baiduri Capital. According to management, Baiduri holds around 27% of Brunei's corporate loan market and 16% of its retail banking market. Growth is now coming from corporate and institutional banking, mainly syndicated loans to international non-oil and gas companies and financial institutions, which doubled to BND670.8M (~USD520M) in FY25. Around 79% of loans are still in Brunei, and management is diversifying overseas with a focus on Singapore (already its largest exposure outside Brunei), Australia and ASEAN, supported by the representative office it opened in Singapore in May 2025.

• Earnings softened in FY25 (ending 31 December 2025) as interest rates fell. Group profit before tax fell 21.5% YoY to BND98.1M (~USD76M), as net interest income slipped 2.8% to BND165.6M (~USD128M) and total operating income fell 6.1%. Profit after tax declined by a smaller 7.7% to BND95.8M (~USD74M), cushioned by a much lower tax charge of BND2.4M (FY24: BND21.4M). The record bank-level profit after tax of BND97.2M (~USD75M, +2.2% YoY) that Baiduri highlights benefits from the same tax effect. Group return on equity remained a decent 11.7%. Going forward, the key is whether strong loan growth can offset margin pressure from lower interest rates, and management expects its shift towards syndicated lending to support its net interest margin.

• Costs are growing faster than income. Group operating expenses rose 4.3% YoY to BND99.6M (~USD77M) on higher staff and overhead costs, pushing the cost-to-income ratio up to around 51% from 46%, on our estimates. Loan impairment charges rose 54% to BND15.2M (~USD12M) but were more than offset by BND16.1M (~USD12M) of recoveries on loans previously written off. Recoveries fell from BND20.8M in FY24; however, this cushion is shrinking, and provisions could weigh more on profits if recoveries keep declining.

• Asset quality is stable, though auto loans bear watching. Non-performing loans (NPLs), loans more than three months in arrears or otherwise impaired, rose to BND88.8M (~USD69M) at end-2025 from BND73.5M, but strong loan growth kept the NPL ratio flat at 3.0% of gross loans, on our estimates. Loss allowances covered around 76% of NPLs. According to management, transportation is the largest sector at 32.1% of loans, mainly Baiduri Finance's vehicle loans, which are secured on the vehicles and subject to Brunei's 60% total debt service ratio cap (a limit on a borrower's total debt repayments relative to income). NPLs in transportation more than doubled to BND17.6M (~USD14M) in FY25, and management flagged delays in repossessing vehicles at Baiduri Finance, which it said were addressed in May 2026. Construction and property, at 25.5% of loans, is mainly mortgages and secured commercial real estate; management noted that affordable housing and a lack of property speculation in Brunei keep mortgage sizes small. More recent data is slightly better: as at 30 June 2026, defaulted loans were 2.8% of gross loans with allowance coverage of around 80%, on our estimates, and over half of defaulted loans were backed by collateral.

• Capital is a clear strength for Baiduri. Its group total capital ratio stood at 21.94% as at 30 June 2026, nearly double the 11.5% requirement for D-SIBs cited by management, while its Tier 1 ratio of 21.44%, made up entirely of shareholders' equity, is well above the 6.5% common equity requirement. Capital ratios were down from end-2025 (total capital ratio: 23.42%) as risk-weighted assets grew 7.6% in six months alongside fast loan growth, while total capital was broadly unchanged at BND838.4M (~USD650M). Management said dividends are capped at 40% of net profit after tax, which helps the bank retain capital. BDCB is also looking to introduce stricter Basel III capital rules, for which management says Baiduri is ready.

• Liquidity is strong, and funding is almost entirely from deposits. Customer deposits grew 3.6% YoY to BND4.0B (~USD3.1B) at end-2025, making up 98.9% of total deposits, split across fixed (35%), savings (37%) and current (28%) accounts. Management describes Baiduri as a net lender to other banks, with excess liquidity of around BND1.8-1.9B (~USD1.4-1.5B). This is consistent with cash, central bank balances and investment securities of about BND2.0B (~USD1.5B), or 40% of total assets, on our estimates. With loans growing much faster than deposits, however, net loans rose to 73% of deposits (FY24: 63%). Management said this new SGD issue aims to diversify funding, build Baiduri's presence in Singapore and tap foreign-currency funding for its overseas lending.

• On balance, Baiduri is an A-rated Bruneian bank with very strong capital, ample liquidity and stable asset quality, offset by softer earnings, rising costs, concentration in the small Brunei economy and rapid growth into newer syndicated and cross-border lending. Its D-SIB status and state shareholding add further comfort through likely, though not guaranteed, government support.

• In Table 1 below, we compare this new SGD issue against existing SGD senior unsecured bonds from A-rated Asian banks. Our analysis accounts for the 3.15% IPG, although we expect the final price guidance (FPG) to come in below this level. Overall, this new Baiduri issue offers a yield pickup of around 30bps over similar-tenor peers (do note the slight difference in bond credit ratings), while providing an attractive yield spread of 120bps over comparable Singapore treasuries.

• Overall, we see the 3.15% IPG as attractively priced, given Baiduri's strong capital and liquidity, its A- rating and its systemic importance in Brunei. Investors seeking income from a well-capitalised bank with likely state support can consider this new issue.

Table 1: Peer Comparison

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds SHBVN 2.900% 20Oct2029 Corp (SGD) and the analyst who produced this report hold NIL positions in the above-mentioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.