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RAM Ratings reaffirms Deutsche Malaysia’s AA1/Stable/P1 ratings

Published on 13 Sep 2021.

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RAM Ratings has reaffirmed Deutsche Bank (Malaysia) Berhad’s (Deutsche Malaysia or the Bank) AA1/Stable/P1 financial institution ratings. 

The reaffirmation reflects our belief that Deutsche Bank AG will readily extend support in view of the Bank’s strategic importance to its parent. The ratings are also based on the Bank’s entrenched position in Malaysia’s wholesale banking space, particularly in fixed income and currencies. While Deutsche Malaysia’s significant involvement in capital market activities renders it susceptible to market fluctuations, robust capitalisation affords the Bank ample headroom against earnings volatility.

In FY Dec 2020, the Bank recorded a pre-tax profit of RM355.7 mil (+19% y-o-y) on the back of higher trading income amid heightened market volatility. Pre-tax profit was however markedly lower at RM22.6 mil in 1Q FY Dec 2021 (-81% y-o-y). This was because of a sharp drop in trading income after yields on Malaysian Government Securities (MGS) spiked – mirroring the trend in US Treasury note yields – as prospects of an earlier economic recovery amid swift vaccinations grew during the quarter. As MGS yields have since declined from a peak, we expect the Bank’s earnings to improve in its second quarter. 

Deutsche Malaysia’s common equity tier-1 capital ratio stood at 19.0% as at end-March 2021, adequately cushioning earnings volatility which remains an inherent feature as the bulk of the Bank’s gross income is market-driven.

A legal action brought against the Bank in May 2021 is not reflected in the ratings. We will continue to monitor the situation.

 

Analytical contacts
Chow Kah Mun
(603) 3385 2501
kahmun@ram.com.my

Sophia Lee
(603) 3385 2619
sophia@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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