Published on 10 Jan 2019.
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.
Loh Kit Yoong
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Ratings on Sumitomo Mitsui Banking Corporation Malaysia Berhad