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RAM Ratings reaffirms AAA financial institution ratings of Maybank and its banking entities

Published on 27 Dec 2021.

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RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings (FIRs) of Malayan Banking Berhad (Maybank or the Group) and its banking subsidiaries. Concurrently, the ratings of the entities’ sukuk/debt facilities have also been reaffirmed (full list in Table 1). 

The rating action is premised on Maybank’s dominant market position as the largest bank in Malaysia, its strong funding capabilities and proven management track record. Maybank’s diverse income sources continue to generate healthy operating income before impairment charges. This, together with robust capitalisation, provides the Group with sufficient financial headroom to withstand lingering uncertainties from the COVID-19 pandemic over the next 12-18 months. Considering Maybank’s systemic importance to Malaysia, we believe extraordinary support will come through if needed.

About 31% of Maybank’s domestic loans were under some form of relief as at mid-November 2021. The flexible eligibility criteria of the recent government-led opt-in loan moratorium led to a jump in loans under relief. Among major banking groups, Maybank has the largest share of corporate loans under such assistance (32% of total corporate loans as at mid-November 2021), which warrants closer monitoring. Weakness in specific corporate borrowers, both domestic and foreign, have driven up the Group’s gross impaired loans (GILs) over the years. Despite the heightened credit risk environment, Maybank’s GIL ratio was a lower 1.9% as at end-September 2021 (end-December 2020: 2.2%), helped by relief measures across the region as well as the write-off of several lumpy exposures.

Even so, the Group has been pre-emptively building up its provision buffers through management overlays and by updating forward-looking macroeconomic variables in its provisioning model – both of which contributed about 40% of loan impairment charges in 9M FY Dec 2021. Consequently, loan loss coverage was a stronger 122.8% as at end-September 2021. The Group’s credit cost ratio is expected to clock in between 70 bps and 80 bps this year and is likely to stay elevated in the near term although management has guided for a potential upside to the credit cost ratio given emerging signs of economic recovery.

Maybank’s net interest margin (NIM) rebounded in 9M FY Dec 2021, climbing to an annualised 2.3% on the back of lower deposit costs and lighter borrowing expenses. The Group anticipates NIM expansion of 10 bps-15 bps for the full year, from the level it achieved in FY Dec 2020. This factors in potential modification losses from recent repayment packages. Benefiting from a marked reduction in net impairment charges, Maybank’s annualised return on risk-weighted assets was 2.6% for 9M fiscal 2021. Increased reserving needs however will keep profitability in check. Earnings for FY Dec 2022 will also be suppressed by the one-off prosperity tax of 33% on taxable income in excess of RM100 mil proposed under Budget 2022, which we estimate would have a low double-digit impact on earnings.

Maybank’s capital position continued to be a key rating strength, its post-dividend common equity tier-1 capital ratio standing at a sturdy 14.2% as at end-September 2021. We expect the Group to strike a balance between rewarding shareholders and retaining capital to weather headwinds ahead.

Maybank Islamic Berhad’s and Maybank Investment Bank Berhad’s FIRs mirror those of the Group, given our view that these core subsidiaries are strategically important to the Group. Maybank Islamic, the Group’s flagship Islamic banking entity, is the largest Islamic bank in Malaysia and is well regarded in the global Islamic finance industry. The Group’s investment banking and stockbroking arm, Maybank Investment, is a prominent name in the local investment banking scene, consistently ranking among the top three in the domestic equity and debt capital market league tables.

Table 1: Ratings of entities and debt issues

 

Ratings

Malayan Banking Berhad

  1. Financial Institution Ratings
  • ASEAN scale
  • Malaysian scale

 

seaAAA/Stable/seaP1

AAA/Stable/P1

  1. RM20 billion Subordinated Note Programme (2012/-)

AA1/Stable

  1. RM10 billion Additional Tier-1 Capital Securities Programme (2014/-)

AA3/Stable

  1. RM10 billion Senior Medium-Term Note Programme (2015/-)

AAA/Stable

  1. RM10 billion Commercial Paper/Medium-Term Note Programme (2016/2023)
  • Commercial Papers
  • Medium-Term Notes

P1

AAA/Stable

  1. RM30 billion Sukuk Programme (2017/-) – upsized from RM10 billion previously
  • Senior Sukuk Murabahah
  • Subordinated Sukuk Murabahah
  • Additional Tier-1 Sukuk Mudharabah

 

AAA/Stable

AA1/Stable

AA3/Stable

Maybank Islamic Berhad

  1. Financial Institution Ratings

 

AAA/Stable/P1

  1. RM10 billion Subordinated Sukuk Murabahah Programme (2014/2034)

AA1/Stable

  1. RM10 billion Islamic Commercial Paper/Medium-Term Note Programme (2017/2024)
  • Islamic Commercial Papers
  • Islamic Medium-Term Notes

 

P1

AAA/Stable

  1. RM10 billion Islamic Additional Tier-1 Capital Securities Programme (2017/-)

AA3/Stable

Maybank Investment Bank Berhad

  1. Financial Institution Ratings

 

AAA/Stable/P1

 

Analytical contacts
Chan Yin Huei
(603) 3385 2498
yinhuei@ram.com.my

Loh Kit Yoong
(603) 3385 2493
kityoong@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



Rating Rationale: Malayan Banking Berhad

Rating Rationale: Maybank Islamic Berhad

Rating Rationale: Maybank Investment Bank Berhad

Ratings on Malayan Banking Berhad

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