August 11, 2017 / 9:37 AM / 10 months ago

Fitch Affirms Three Malaysian Banks at 'A-'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/BEIJING, August 11 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of three Malaysian banks - Malayan Banking Berhad (Maybank), Hong Leong Bank Berhad (HLBB) and Export-Import Bank of Malaysia Berhad (MEXIM) - at 'A-'. The ratings are on Stable Outlook. A full list of rating action is at the end of this commentary. KEY RATING DRIVERS IDRs AND VIABILITY RATINGS - MAYBANK AND HLBB Maybank's IDRs and Viability Rating are underpinned by its substantial franchise, which commands an 18% market share of Malaysia's banking system deposits and loans. The bank's strong company profile underpins its stable funding and liquidity and has helped deliver sound performance through economic cycles. Maybank's steady pre-provision earnings and balance-sheet buffers should help it weather the rise in its impaired loan ratio (end-1Q17: 2.4%; end-2015: 1.9%), which has originated partly from its oil- and gas-related exposures regionally. HLBB's IDRs and Viability Rating are underpinned by its conservative risk appetite, which is reflected in its low impaired-loan ratio of 0.9% at end-March 2017, compared with the sector average of 1.6%, and steady funding and liquidity profile. The Stable Outlooks on the IDRs reflect Fitch's view that the banks' intrinsic credit profiles should stand resilient in the face of sustained moderate asset-quality pressure. Pockets of asset-quality risk remain for the overall economy; in the oil and gas sector, certain oversupplied commercial property segments and among more vulnerable lower-income household borrowers. However, we expect any further deterioration to be manageable for the banks due to their diversified loan portfolios, stable underwriting standards and improved capitalisation over the previous few years, coupled with our expectation of steady economic growth over the next one to two years. Malaysia's economy has proven resilient despite of a number of challenges, including a sharp oil-price correction, significant currency depreciation, weakened domestic sentiment and volatile capital flows. Fitch expects improving global growth to boost domestic economic activity in the near term. SUPPORT RATINGS AND SUPPORT RATING FLOORS - MAYBANK AND HLBB Maybank's and HLBB's Support Ratings and Support Rating Floors reflect Fitch's expectation of a high probability of sovereign support for both banks, if needed. Maybank's Support Rating of '2' and Support Rating Floor of 'BBB' reflect its extremely high systemic importance stemming from its large domestic market share and indirect state shareholding through various state-owned funds of around 60%-70%. HLBB's Support Rating of '2' and Support Rating Floor of 'BBB-' reflect its systemic importance as the fifth-largest local bank, accounting for around 9% of system-wide deposits, as well as its private ownership, unlike certain large Malaysian banks. DEBT RATINGS - MAYBANK AND HLBB The ratings on Maybank's senior notes and the medium-term note programmes (MTN) of Maybank and HLBB are at the same level as the banks' IDRs. This is because the notes and programmes constitute their direct, unconditional and unsecured obligations. Maybank's legacy Basel II-compliant subordinated notes are rated one notch below its Viability Rating, reflecting the note's subordinated status relative to claims from senior unsecured creditors and the absence of a going-concern loss-absorption mechanism. Maybank's Basel II-compliant hybrid securities are rated four notches below its Viability Rating to reflect the securities' deep subordination status, the presence of going-concern loss-absorption mechanisms and look-back provisions in the optional dividend deferral. IDR, SUPPORT RATING, SUPPORT RATING FLOOR AND SENIOR DEBT - MEXIM MEXIM's IDR, Support Rating Floor, senior debt and programme ratings are equalised with the Malaysian sovereign IDR at 'A-'. This reflects Fitch's view that the probability of extraordinary state support for MEXIM is extremely high, if necessary. MEXIM's unique policy mandate, full state ownership and past instances of support anchor our expectations for an extremely high likelihood of state support. MEXIM is a development financial institution with a specific mandate to finance and support Malaysian export and import activities and overseas projects. MEXIM is small in relation to Malaysia's GDP and its domestic banking system, implying that the sovereign is very likely to have the ability to support the bank, if needed. RATING SENSITIVITIES IDRS AND VIABILITY RATINGS - MAYBANK AND HLBB There is little scope for the Long-Term IDRs of Maybank and HLBB to be upgraded for the foreseeable future, as they are on par with those of the Malaysian sovereign. A significant rise in risk appetite could lead to negative rating action, unless accompanied by an offsetting rise in loss-absorption buffers. Higher risk appetite may be evidenced through excessive loan growth, a significant shift in exposures towards higher-risk sectors or geographies or aggressive acquisition activity. A severe downturn in the operating environment, to the extent that it severely weakens the banks' profitability, capitalisation or funding and liquidity profiles, would also be negative for their ratings. SUPPORT RATINGS AND SUPPORT RATING FLOORS - MAYBANK AND HLBB A shift in the government's ability or propensity to provide extraordinary support to Maybank and HLBB would affect their Support Ratings and Support Rating Floors. This could arise from a change in the sovereign ratings or the introduction of senior debt bail-in requirements in line with developments in other jurisdictions globally - though Fitch views the latter to be a longer-term risk for the Malaysian banking system. DEBT RATINGS - MAYBANK AND HLBB The ratings on Maybank's senior notes and the MTN programmes of Maybank and HLBB are sensitive to changes in their respective IDRs, while the ratings on Maybank's Basel II subordinated notes and hybrid securities depend on changes in the bank's Viability Rating. IDR, SUPPORT RATING, SUPPORT RATING FLOOR AND SENIOR DEBT - MEXIM MEXIM's ratings are sensitive to changes in the sovereign's creditworthiness and ratings, and to any perceived weakening in the sovereign's propensity to support the bank. Its ratings may be notched down from the sovereign if Fitch believes the sovereign's propensity to support the bank has diminished, such as with a reduction of the bank's policy role or decrease in the sovereign's stake in the bank. However, we do not expect such scenarios to occur in the near to medium term. The rating actions are as follows: Maybank - Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable - Short-Term Foreign-Currency IDR affirmed at 'F2' - Long-Term Local-Currency IDR affirmed at 'A-'; Outlook Stable - Viability Rating affirmed at 'a-' - Support Rating affirmed at '2' - Support Rating Floor affirmed at 'BBB' - Senior notes (including the multicurrency MTN programme) affirmed at 'A-' - Basel II-compliant subordinated notes affirmed at 'BBB+' - Basel II-compliant hybrid Tier 1 securities affirmed at 'BB+' HLBB - Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable - Short-Term Foreign-Currency IDR affirmed at 'F2' - Viability Rating affirmed at 'a-' - Support Rating affirmed at '2' - Support Rating Floor affirmed at 'BBB-' - MTN programme rating affirmed at 'A-' MEXIM - Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable - Support Rating affirmed at '1' - Support Rating Floor affirmed at 'A-' - Senior debt (including the MTN and sukuk programmes) affirmed at 'A-' Contact: Primary Analyst Elaine Koh (Maybank) Director +65 6796 7239 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Wee Siang Ng (HLBB) Senior Director +65 6796 7230 Tamma Febrian (MEXIM) Associate Director +65 6796 7237 Secondary Analyst Wee Siang Ng (Maybank) Senior Director +65 6796 7230 Elaine Koh (HLBB and MEXIM) Director +65 6796 7239 Committee Chairperson Heakyu Chang Senior Director +822 3278 8363 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria Criteria for Rating Sukuk (pub. 16 Aug 2016) here Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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