(The following was released by the rating agency)
SINGAPORE, February 26 (Fitch) Fitch Ratings has affirmed Malayan Banking Berhad's (Maybank) ratings, including its 'A-' Long-Term Foreign-Currency Issuer Default Rating (IDR) with Stable Outlook and 'a-' Viability Rating. A full rating action breakdown is provided below.
"The rating affirmation recognises Maybank's dominant domestic presence, satisfactory balance sheet and steady earnings profile," says Alfred Chan, Director in Fitch's Financial Institutions team. "The Stable Outlook indicates dim prospects for an upgrade to the bank's ratings, which are among the highest of rated domestic banks - and even among many banks in emerging economies."
Maybank's strong domestic franchise underlines its status as the largest Malaysian banking group, which in turn underpins revenue stability and its sound deposit base. With a firm footing in the home market, the bank has been pursuing growth abroad in south-east Asia, which Fitch believes is likely to increase diversification and benefit its reputation over the long term.
Nevertheless, negative rating actions may arise if Fitch perceives an increase in balance-sheet risk arising from acquisition and/or expansion in less developed markets, especially those with challenges surrounding the operating and regulatory environment. At present, however, exposure to such countries like Indonesia and Vietnam is not significant, at less than 10% of Maybank's loans. The bank has taken incremental efforts to refine risk management and expansion strategies for riskier operating environments. Moreover, Fitch expects Maybank to keep its core Tier 1 capital adequacy ratio (excluding hybrids) healthy at around 9%, supported by earnings and modest cash dividend payments.
In the near term, Fitch envisages Maybank's earnings and asset quality to be affected somewhat amid a weak global economy, which has a greater impact on export-led economies such as Malaysia and Singapore; 85% of the bank's loans are from these two countries. Downward rating implications could result from a weakened loss-absorption capacity, together with unexpected deterioration in asset quality and core capitalisation in a protracted downturn. However Fitch believes that potentially higher credit costs will hurt only earnings, leaving capital broadly intact. Residual provisioning risk is modest, with unreserved non-performing loans representing just 3% of equity at end-December 2011.
The senior notes are rated at the same level as Maybank's Long-Term IDR, as they constitute the bank's direct, unconditional, unsubordinated and unsecured obligations, and hence rank equally with all its other unsecured and unsubordinated obligations. The subordinated notes are rated one notch below Maybank's Viability Rating to reflect its subordinated status and the absence of any going-concern loss-absorption mechanism.
Maybank's 'BBB' hybrid rating was among the rated capital securities that Fitch has placed on Rating Watch Negative (RWN) in December 2011, and the agency expects to collectively resolve the RWNs in Q112. This rating action was a result of the agency's new criteria on bank regulatory capital and similar securities (see "Fitch Publishes New Bank Regulatory Capital Rating Criteria; Places Many Securities on RWN", dated 15 December 2011, at www.fitchratings.com for more details).
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+'