Published on 18 Nov 2019.
RAM Ratings has reaffirmed Export-Import Bank of Malaysia Berhad’s (MEXIM or the Bank) respective gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1 financial institution ratings on the global, ASEAN and Malaysian scales. At the same time, the global-scale gA2(s)/Stable rating of EXIM Sukuk Malaysia Berhad’s USD1.0 bil Multi-currency Sukuk Issuance Programme has been reaffirmed. EXIM Sukuk Malaysia is the Bank’s funding conduit.
The reaffirmation is premised on our view that MEXIM remains highly strategic to the Government of Malaysia (GoM, rated gA2/Stable/gP1), given the Bank’s mandate to advance Malaysia’s trade agenda and support domestic firms’ outward investments. Through the years, the GoM has demonstrated its support for MEXIM through a recapitalisation exercise, funding schemes at preferential rates and, more recently, subscription of the Bank’s RM250 mil redeemable convertible cumulative preference shares (RCCPS) in 2018. These anchor our belief that MEXIM will receive extraordinary government support if needed.
Bank Negara Malaysia’s recently announced proposal to consolidate MEXIM and three other development financial institutions (DFIs) is not envisaged to entail any rating impact, as the restructuring is unlikely to diminish the strategic importance of the merged entity. That said, it remains to be seen how the merger will affect the Bank’s operations in the near to medium term; we will continue monitoring developments on this front. Our press release dated 17 October 2019 addressing the proposed consolidation can be found at www.ram.com.my.
Given their mandate to underwrite higher-risk credits, DFIs’ asset quality is expected to be weaker, as is the case with MEXIM. In fiscal 2018 and 1H fiscal 2019, the Bank remained affected by lumpy corporate exposures – the majority of which were related to oil and gas. This catapulted its headline gross impaired loan ratio to a high of 33.4% as at end-June 2019 (end-December 2017: 11.2%), and a very high credit cost ratio of 4.2% in fiscal 2018. MEXIM’s large proportion of Stage 2 exposures (20% of gross loans as at end-June 2019) may be indicative of unrelenting pressure on its asset quality, which could entail another outsized impairment in fiscal 2019.
While the Bank’s tier-1 capital and total capital ratios had been lifted to a respective 21.4% and 28.8% as at end-June 2019 (end-December 2017: 19.0% and 20.1%), downside risks remain given MEXIM’s vulnerability to chunky impairments. That said, our stress test indicates that the Bank’s capital buffer would still be adequate. We believe that MEXIM’s close ties with the GoM mitigates concerns about its capital as well as funding and liquidity. The latter’s supportive stance is underlined by its subscription of the Bank’s RCCPS last year.
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2577
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
Ratings on Export-Import Bank of Malaysia Berhad