Published on 14 Mar 2022.
RAM Ratings has released its latest Corporate Default and Rating Transition Study. The study provides an update on the credit performance of RAM’s rated portfolio in 2021.
Malaysia’s GDP grew 3.1% in 2021. This was a welcome contrast to the steep 5.6% contraction registered for 2020, albeit lower than the initially anticipated expansion of 6.5% to 7.5%. The economy grew 7.1% in 1H 2021 on the back of robust exports but tumbled in the third quarter following a surge in COVID-19 infections that saw the reimposition of movement controls. A strong vaccination drive allowed the economy to subsequently reopen and hefty government stimulus and aid measures worth RM530 bil helped cushion the adverse impact of the pandemic, enabling the country to end the year on a positive note.
Barring short-term volatilities and the impact of the Russia-Ukraine war which we are closely monitoring, Malaysia’s economic recovery appears to be on a firmer path in 2022 (6.8% growth forecast, with a downside bias), seeing the resumption of all economic activities and healthy external demand. Although Malaysia’s trade links with the two countries are limited, a protracted war would cause inflationary shocks (from surging commodity prices) and supply chain disruptions, dampen global demand and pose financial market instability risks to growth.
Given still-challenging growth prospects and uncertainties, RAM’s rating actions stayed marginally negative in 2021. There were six downgrades and five upgrades. However, inclusive of rating outlook revisions, the year turned out positive, with a total of 11 positive actions in contrast to eight negative actions. Looking ahead, net rating action could still swing negative as issuers with negative outlooks trump those with positive outlooks 3:1 as at end-2021. No issuer defaults were recorded during the year.
All said, the credit risks of RAM’s rated portfolio remained contained. About 80% of rated issuers have AA or higher ratings, indicating strong creditworthiness and a capacity to meet debt obligations on a timely basis. Only a very small number of issuers is deemed to be at a high risk of default in the next 12 months (about 2% of total issuers as at end-2021). These high-risk issues are mostly wrapped by credit support from guarantors rated at least AA1, which mitigates the investor’s expected loss should a default occur.
Chuan Shyang Lin
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