TEXT-Fitch affirms Maybank at 'A-';outlook stable

Wed Jan 23, 2013 2:30am EST

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(The following statement was released by the rating agency)

Jan 23 - Fitch Ratings has affirmed Malayan Banking Berhad's (Maybank) ratings, including its 'A-' Long-Term Issuer Default Ratings (IDRs) with Stable Outlook and 'a-' Viability Rating (VR). A full rating action breakdown is provided below.

Maybank's IDRs are driven by its VR, reflecting the bank's strong domestic foothold and sound standalone credit fundamentals through economic cycles. The likelihood of an upgrade is low as the bank's ratings are among the highest of Fitch-rated banks both in Malaysia and in emerging economies.

A negative sovereign rating action would lead to a corresponding action on the bank's ratings, as the risk profiles of Maybank and the state are highly inter-connected, in light of its large government bond and central bank exposure, and indirect state shareholding (about 70%). Downward rating risks could also arise if Fitch perceives a rise in balance-sheet risk due to aggressive acquisition or expansion in less developed markets, especially those with challenges surrounding the operating and regulatory environment.

Maybank's status as the largest banking group in Malaysia supports the diversity and stability of its income and funding. Liquidity is satisfactory, with government securities, interbank assets and short-term unencumbered funds covering all short-term money market obligations, and 15%-20% of deposits. Core capitalisation was bolstered by a private equity placement in October 2012, and is likely to be supported by the bank's satisfactory earnings generation and modest cash dividend record. Asset quality has been satisfactory through recent cycles, due to stable operating conditions and a prudent regulatory backdrop in Malaysia and Singapore, which constitute around 85% of its loans.

Over the medium term, Maybank is likely to further its expansion in other countries, especially those with better growth prospects and higher returns; this is also in line with its ambition to be a leading regional player in South East Asia. However, Fitch believes this could also raise the bank's risk profile as most of these markets carry higher operating risk than Malaysia and Singapore. Such challenges are evident in Maybank's operations in Indonesia, whose performance is weaker than the broad sector. Nonetheless, the bank's proportion of loans from Indonesia, at just 8% at end-September 2012, has barely increased over the last four years, due to efforts to improve risk management and an ongoing focus on deposits growth and risk-adjusted returns over loans growth.

The Support Rating and Support Rating Floor underline Fitch's view of a high probability of extraordinary state support for Maybank, if needed. This view is based on the bank's domestic systemic importance, its large indirect state ownership, and the precedent of the government having supported distressed financial institutions.

The 'A-' rating of the senior notes is at the same level as Maybank's IDR, as the senior notes constitute the bank's direct, unconditional and unsecured obligations and hence rank equally with them. The deposits are rated one notch above the Long-Term IDR to reflect Malaysia's depositor preference regime, where depositors would rank above senior unsecured creditors in a liquidation scenario. The 'BBB+' rating on the subordinated notes is one notch below the VR to reflect its subordinated status from senior unsecured creditors and the absence of any going-concern loss-absorption mechanism. The 'BB+' hybrid rating is four notches below the VR on account of the instrument's deeply subordinated status and coupon deferral mechanism. Changes of the IDR and VR would accordingly affect these issue ratings of Maybank.

Maybank's full list of rating actions:

- Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable

- 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'

- Long-term deposits affirmed at 'A'

- Senior notes affirmed at 'A-'

- Subordinated notes affirmed at 'BBB+'

- Hybrid Tier 1 notes affirmed at 'BB+'

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