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RAM Ratings reaffirms MUFG Malaysia’s AAA(bg)/Stable sukuk rating
Published on 21 Oct 2022.
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. Simultaneously, we have reaffirmed the Bank’s AA1/Stable/P1 financial institution ratings.
The enhanced issue rating considers an irrevocable and unconditional guarantee on the sukuk, extended by MUFG Bank Ltd (rated AAA/Stable/P1 by RAM) – MUFG Malaysia’s parent. MUFG Bank Ltd is 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 MUFG Malaysia’s debt facilities as well as liquidity lines and a cash collateral scheme to support the Bank’s loan growth.
The ratings also incorporate the Bank’s robust capitalisation and superior loan quality. Relatively volatile earnings and high concentration risk however are 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 resulted in thinner net interest margins by industry standards. MUFG Malaysia’s common equity tier-1 capital ratio remains strong at 28.3% as at end-June 2022 (end-March 2021: 28.7%), providing an ample loss absorption buffer against potential economic headwinds. Gross impaired loans were negligible on the same date.
MUFG Malaysia’s trading portfolio has contributed, on average, about 39% of its gross income over the last five financial years, exposing the Bank to some degree of earnings volatility. Pre-tax profit declined to RM346.8 mil in FY Mar 2022 (FY Mar 2021: RM370.5 mil) due to a reduction in the reversal of impairment charges and increased operating expenses. The Bank’s annualised net interest margin was lifted to 1.10% by higher interest rates in 1Q FY Mar 2023 (FY Mar 2022: 0.85%), albeit still low. The Bank expects better earnings going forward in view of rising interest rates.
Due to its small stature and emphasis on wholesale banking, the Bank’s loan and deposit bases are highly concentrated. As at end-June 2022, the 10 largest loans accounted for 65% of its lending portfolio while the top 10 depositors constituted 27% of total customer deposits.
Analytical contacts
Lee Jo Yee
(603) 3385 2583
joyee@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, in as much 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
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