Published on 05 Apr 2021.
When RAM Ratings’ COVID-19 credit monitor was last released in April 2020, we had just entered the first iteration of movement control order. One year on, we have, in a recently released commentary, reassessed our rated portfolio’s sensitivity to the repercussions of the pandemic and the consequent challenges faced by the rated entities in our portfolio. Based on this, two-thirds of our rated credits are deemed at ‘low’ risk or have low probability of being impacted by the lingering effects of COVID-19 in 2021. Only 8% are assessed to be of ‘high’ risk, indicating more sensitivity to credit impairment. Ultimately, the pace of Malaysia’s vaccination programme will be a pivotal determinant of whether credit fundamentals will be permanently impaired or if the budding recovery of recent months will be sustainable.
The impact on domestic business operations varies by industry sector, depending on the Government’s response and the extent of private initiatives. While vaccination programmes in key economies may temper the severity of the global economic downturn, the trajectory and timing of recovery for certain sectors are expected to be lengthier. Malaysian companies that have experienced a larger impact to business performance include those in the leisure- and tourism-related sectors and domestic toll road operators that own intra-urban highways.
Nonetheless, there are some exceptions where businesses have been left relatively unscathed. Examples are ‘essential’ sectors such as power, ports and telecommunications. We also see positive catalysts for recovery in other sectors such as construction, automotive, plantations and commodities. Still, it will be important to monitor the developments in global supply chain disruptions, and border controls. We expect Malaysia’s economic growth to recover at a slower rate of 5% in 2021, underscored by subdued consumer spending and business investment as well as weak labour conditions. Upside will, however, stem from swifter-than-expected inoculation progress.
One positive highlight that remains constant is Malaysia’s sound and strongly capitalised banking system which puts it on firm footing to absorb likely deterioration in asset quality. Another highlight is the rating stability observed in RAM’s structured transactions, demonstrating how contingent liquidity support and other embedded structural elements can lessen the impact of credit stress on the rated notes. The full report, ‘Moving On: Navigating COVID-19 turbulence” can be accessed from our website, www.ram.com.my.
Siew Suet Ming
(603) 3385 2585
Woon Khai Jhek
(603) 3385 2512
(603) 3385 2577
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Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains.
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