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RAM Ratings reaffirms SMBC Malaysia’s AA1 rating

Published on 20 Jan 2021.

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RAM Ratings has reaffirmed Sumitomo Mitsui Banking Corporation Malaysia Berhad’s (SMBC Malaysia or the Bank) AA1/Stable/P1 financial institution ratings. The reaffirmation is premised on our view that the Bank’s credit metrics will remain at healthy levels despite the challenging economic landscape. The ratings also consider our expectation of ready support from the Bank’s ultimate parent, Sumitomo Mitsui Financial Group, Inc. (SMFG or the Group), in times of need given its strategic role in advancing the Group’s Asia-centric growth agenda. Parental backing is evinced by capital injections via Sumitomo Mitsui Banking Corporation as well as interbank deposits and cash collateral placements. 

SMBC Malaysia’s asset quality stayed superior without any impaired loans as at end-September 2020. Closely monitored loans, however, surged amid the tougher economic climate. This elevated the Bank’s credit cost ratio to 35 bps in FY Mar 2020, compared to a net writeback the year before. A pre-emptive build-up of provisions pushed this ratio higher to an annualised 78 bps in 1H FY Mar 2021. Owing to its modest size and propensity to finance large corporates, the Bank’s loan book is highly concentrated in terms of borrowers and sectors, which renders it susceptible to lumpy impairments. 

Over the years, SMBC Malaysia’s net interest margin (NIM) has stayed thin as a result of substantial lending to top-tier corporates. Successive rate cuts in 2020 had shrunk its NIM to an annualised 1.2% in 1H FY Mar 2021. The Bank’s pre-tax profit slumped to RM52 mil in the same period (1H FY Mar 2020: RM145 mil), dragged down by heftier impairment charges. We expect SMBC Malaysia’s full-year profitability to remain pressured by potentially greater provisioning needs. Meanwhile, the Bank’s common equity tier-1 capital ratio was a robust 23.1% as at end-September 2020. Its capital level is still accommodative of future expansion and will provide sufficient headroom against potential credit deterioration. 

 

Analytical contact
Tan Shu Xuan
(603) 3385 2497
shuxuan@ram.com.my

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

 

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 2021 by RAM Rating Services Berhad



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