Published on 22 Dec 2020.
RAM Ratings has reaffirmed the AAA(bg)/Stable rating of debt securities issued under MUFG Bank (Malaysia) Berhad’s (MUFG Malaysia or the Bank) USD500 million Multi-Currency Sukuk Wakalah Bi Al-Istithmar Programme (the Programme). The enhanced issue rating considers an irrevocable and unconditional guarantee on the sukuk, extended by MUFG Malaysia’s parent, MUFG Bank Ltd (rated AAA/Stable/P1 by RAM). Simultaneously, we have reaffirmed the Bank’s AA1/Stable/P1 financial institution ratings.
MUFG Malaysia is a subsidiary of Mitsubishi UFJ Financial Group’s commercial banking arm – one of the world’s largest financial groups and Japan’s leading banking group. MUFG Malaysia’s ratings benefit from a high likelihood of support from its parent. The ratings also take into account the Bank’s strong capitalisation and solid loan quality. Its common equity tier-1 capital ratio came in at 23.4% as at end-June 2020 (end-March 2019: 21.3%), affording an ample loss absorption buffer against economic disruptions from the Covid-19 pandemic.
Driven by more prudent assumptions behind its loan loss modelling, MUFG Malaysia’s gross impaired loan ratio had risen to 0.8% on the same date (end-March 2019: 0.0%) even though nearly all of its loans were not in arrears. Further impairments might arise from the adjustment of its assumptions to better reflect prevailing economic conditions. That said, the Bank’s asset quality is expected to remain solid given its lending to highly rated credits comprising mostly Japanese firms, MNCs and large domestic corporates. Virtually all the Bank’s borrowers have continued loan repayments without requesting restructuring and rescheduling support, as announced by Bank Negara Malaysia since the onset of the pandemic.
On the other side of the coin, MUFG Malaysia’s focus on lending to top-tier customers has resulted in thinner net interest margins by industry standards. Lower interest earnings consequent to rate cuts and heftier loan loss allowances diminished the Bank’s pre-tax profit for FY Mar 2020 by 19% y-o-y to RM230 mil. While pre-tax profit was a better RM67.6 mil in 1Q FY Mar 2021 (1Q FY Mar 2020: RM42.6 mil), full-year profitability might be affected by further loan-loss provisioning.
Loan and deposit concentration remain prominent in MUFG Malaysia’s business due to its small stature. As at end-June 2020, the Bank’s 10 largest loans accounted for half of its lending while its top 10 depositors constituted 28% of total customer deposits. MUFG Malaysia also relies heavily on parental funding in the form of cash collateral placements to facilitate its lending activities.
Goh Kwan Kheen, Timothy
(603) 3385 2495
(603) 3385 2577
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Ratings on MUFG Bank (Malaysia) Berhad