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Proposed DFI consolidation under Budget 2020 not expected to impact ratings

Published on 17 Oct 2019.

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The recently unveiled Budget 2020 discloses plans for a two-stage restructuring of developmental financial institutions (DFI). This proposal will involve the merger of Bank Pembangunan Malaysia Berhad (Bank Pembangunan), Danajamin Nasional Berhad (Danajamin), Export-Import Bank of Malaysia Berhad (MEXIM) and the Small & Medium Enterprise Development Bank Malaysia Berhad (SME Bank). 

The proposed exercise is not anticipated to affect the respective AAA/Stable/P1 financial institution ratings of Bank Pembangunan and MEXIM, nor have any impact on Danajamin’s AAA/Stable/P1 insurer financial strength ratings or the ratings of Danajamin-guaranteed issues. The rating assessments for Bank Pembangunan, MEXIM and Danajamin already consider the solid backing of the Government of Malaysia, anchored by each entity’s strategic role in fulfilling the nation’s developmental goals. 

The said four entities have a combined asset base in excess of RM45 billion and an aggregate guarantee portfolio of approximately RM6 billion. With a larger market impact, the merged DFI’s strategic importance is expected to remain well preserved. The DFI’s credit profile and the ratings of debts that may be transferred to it will continue to benefit from a strong likelihood of government support if required. 

While the details remain vague at this juncture, intricacies unique to this proposed corporate exercise include the amalgamation of the entities’ public policy roles and the scope of the enlarged DFI. The integration of resources, cultures and systems is critical to a merger of this scale. If well implemented, the proposed realignment of the strategic mandates of DFIs will support the nation’s aspirations in a new global digital economic landscape.

Bank Pembangunan provides medium to long-term financing to sectors vital to the nation’s socio-economic development, while MEXIM supports and promotes Malaysia’s external trade. As the national financial guarantee insurer, Danajamin is tasked with developing the debt capital markets through credit enhancements for bond and sukuk issuances. Meanwhile, SME Bank nurtures and serves the financing needs of SMEs – a segment which accounts for more than a third of the country’s GDP. 

 

Analytical contacts
Wong Yin Ching 
(603) 3385 2555
yinching@ram.com.my

Joanne Kek
(603) 3385 2520
joanne@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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



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