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RAM Ratings reaffirms Sumitomo Mitsui Banking Corp Malaysia’s AA1/Stable/P1 ratings

Published on 10 Jan 2019.

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RAM Ratings has reaffirmed Sumitomo Mitsui Banking Corporation Malaysia Berhad’s (SMBC Malaysia or the Bank) AA1/Stable/P1 financial institution ratings. The ratings incorporate our expectation of ready support from the Bank’s ultimate parent Sumitomo Mitsui Financial Group, Inc. (SMFG or the Group) if needed, given its role in the Group’s Asia-centric strategy. SMFG has demonstrated firm support for SMBC Malaysia with capital injections over the years – three infusions totalling RM2.1 billion – as well as interbank deposits and cash collateral placements. With an asset base of JPY207 trillion, SMFG stands among the largest financial institutions globally and is a mega banking group in Japan.

SMBC Malaysia is a small wholesale bank with an asset size of RM18.8 billion as at end-June 2018. Having charted rapid expansion with a CAGR of 77% between 2013 and 2017, the Bank’s loan growth came in at just 6% in FY Mar 2018 due to a few sizeable early repayments, before picking up pace to 14% y-o-y in 1Q FY Mar 2019. Given its small size and preference for higher-tier corporates, SMBC Malaysia’s portfolio is significantly concentrated in terms of both borrowers and sectors, which exposes the Bank to lumpy impairments in times of credit stress. The Bank’s loan book has remained unscathed with no impaired exposures to date; improvement in borrowers’ internal ratings and the adoption of MFRS 9 had culminated in net impairment write-backs in FY Mar 2018 and 1Q FY Mar 2019.

The most recent capital injection in July 2017 helped broaden the Bank’s net interest margins to 1.2% and 1.4% in FY Mar 2018 and 1Q FY Mar 2019, respectively – albeit still underperforming that of domestic peers. Meanwhile, the Bank’s funding and liquidity stayed strong with liquidity coverage ratio and net stable funding ratio averaging a respective 214% and 123% in 1Q FY Mar 2019. 

SMBC Malaysia’s common equity tier-1 capital ratio had augmented to 22.5% as at end-March 2018 (15.3% a year earlier) thanks to fresh capital, before easing to 21.1% as at end-June 2018 owing to loan growth. Although slightly lower, this capital level is still accommodative of future expansion and more than sufficient to cushion potential credit deterioration.


Analytical contact
Loh Kit Yoong
(603) 7628 1031
kityoong@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad

 



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