Published on 05 Oct 2021.
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 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 MUFG Bank Ltd – the commercial banking arm of Mitsubishi UFJ Financial Group, one of the world’s largest financial groups and Japan’s leading banking group. The Bank’s ratings reflect its strategic importance to and close relationship with its parent. Parental support has been demonstrated in the form of guarantees over the Bank’s debt facilities as well as liquidity lines and a cash collateral scheme to support loan growth.
The ratings also incorporate the Bank’s robust capitalisation and superior loan quality. Relatively volatile earnings and high concentration risk however serve as moderating factors. While we expect MUFG Malaysia’s asset quality to stay solid in view of loans extended to highly rated Japanese conglomerates, multinationals and large domestic corporates, a focus on lending to top-tier customers has resulted in thinner net interest margins by industry standards. The Bank’s gross impaired loans were negligible as at end-March 2021.
MUFG Malaysia’s profitability is also sensitive to market fluctuations owing to its large forex trading business. Pre-tax profit soared 61% to RM370.5 mil in FY Mar 2021 (FY March 2020: RM230.2 mil), boosted by the net reversal of impairment charges and better non-interest income from trading activities. Given the challenging economic environment, we expect the Bank’s earnings performance to remain flattish in the current fiscal year.
Due to its small stature and emphasis on wholesale banking, the Bank’s loan and deposit base is highly concentrated. As at end-March 2021, the 10 largest loans accounted for 53% of its lending portfolio while the top 10 depositors constituted 29% of total customer deposits. MUFG Malaysia’s common equity tier-1 capital ratio jumped to 28.7% as at the same date (end-March 2020: 22.6%), providing an ample loss absorption buffer against economic headwinds from the Covid-19 pandemic.
Goh Kwan Kheen, Timothy
(603) 3385 2496
(603) 3385 2619
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Ratings on MUFG Bank (Malaysia) Berhad