Published on 06 Feb 2020.
RAM Ratings is of the view that Malaysia's three largest banking groups - Malayan Banking Berhad (Maybank, AAA/Stable/P1), CIMB Group Holdings Berhad (CIMB, AA1/Stable/P1) and Public Bank Berhad (PBB, AAA/Stable/P1) - will be able to comfortably comply with the new capital requirements for domestic systemically important banks (D-SIBs). These banking groups have been identified as D-SIBs by Bank Negara Malaysia, in conjunction with the release of the D-SIB framework that will come into effect on 31 January 2021.
The policy framework imposes more stringent capital requirements on D-SIBs, i.e. financial institutions that may pose risks to the stability of the financial system and the broader economy in the event of their distress or failure. RAM’s criteria paper, Systemic Support Assessment for Banks, is broadly in line with the D-SIB framework and no rating movements are expected to arise from the agency’s portfolio of rated banks.
“The three D-SIBs have ample room to meet the stricter capital requirements without having to raise additional capital,” notes Wong Yin Ching, RAM Ratings’ co-head of Financial Institution Ratings. Based on their relative systemic importance, Maybank and CIMB have been placed in Bucket 2 while PBB is in Bucket 1. Bucket 2 necessitates an additional common equity tier-1 (CET-1) capital surcharge of 1% of a bank’s risk-weighted assets above the existing minimum of 7%; Bucket 1 attracts an additional 0.5%. As at end-September 2019, the three D-SIBs’ capital buffers ranged from 4.5-6.4 percentage points above their new minimum requirements. Upon implementation of the new framework, Bucket 3 (with a 2% capital surcharge) will be unpopulated. However, it is maintained to discourage D-SIBs from elevating their systemic importance.
“We believe the implementation of the framework will be positive for the Malaysian banking industry as it will enhance large financial institutions’ ability to withstand shocks while safeguarding the sector’s stability in times of stress. Notably, the D-SIB additional capital requirements in Malaysia are less stringent than those of other regional jurisdictions and there are also fewer identified D-SIBs,” explains Wong. Singapore has seven D-SIBs that are required to maintain an additional 2% capital surcharge while Thailand has five, which need to hold an extra 1% of capital. Similar to Malaysia, Indonesia and the Philippines have also introduced different buckets, depending on the profiles of the banks. These two countries house more than 10 D-SIBs each.
Wong Yin Ching, CFA
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Ratings on Malayan Banking Berhad