Published on 29 Dec 2022.
RAM Ratings has reaffirmed Sumitomo Mitsui Banking Corporation Malaysia Berhad’s (SMBC Malaysia or the Bank) AA1/Stable/P1 financial institution ratings.
The rating action reflects our expectation that financial support from the Bank’s ultimate parent, Sumitomo Mitsui Financial Group, Inc., will be forthcoming if required, given the Bank’s strategic role in the Group’s Asia-centric strategy. The ratings remain supported by SMBC Malaysia’s sturdy capitalisation, healthy funding and liquidity profile, and excellent asset quality. On balance, the Bank’s modest domestic franchise, high borrower and depositor concentration, and soft profitability continue to moderate its ratings.
SMBC Malaysia’s asset quality performance was commendable amid the recent downturn as its clientele primarily comprises local subsidiaries of established Japanese conglomerates and highly rated domestic corporates. With just one impaired exposure, the Bank’s gross impaired loan ratio stood at 0.4% as at end-September 2022 (unchanged since end-March 2021). Credit costs have been similarly low, ranging from net writebacks to a net charge of 27 bps in the last five years (1H FY Mar 2023: 14 bps; FY Mar 2022: 6 bps). While downside risks persist on the macroeconomic front, with recovery expected to be uneven across sectors, we take comfort in the resilience of the Bank’s clientele through the downturn.
As lending to top-tier corporates, which is generally lower yielding, forms a substantial proportion of SMBC Malaysia’s loans, its net interest margin still lags the industry’s at around 1.0%-1.1% (1H FY Mar 2023: 1.1%). Despite flattish net interest income on account of a smaller loan book, stronger fee income drove the Bank’s pre-tax profit up 3.8% to RM244.0 mil in fiscal 2022 (fiscal 2021: RM235.1 mil). Pre-tax profit subsequently fell 23% to RM118.2 mil in 1H fiscal 2023 (1H fiscal 2022: RM154.3 mil), mainly owing to additional forward-looking provisions to reflect potential risks arising from the Russia-Ukraine war and, to some extent, a heavier cost load. These factors overshadowed an improved top line from higher loan growth (+10% in the year to date; fiscal 2022: -4%).
SMBC Malaysia’s capitalisation remains robust, its common equity tier-1 capital and total capital ratios standing at 20.7% and 21.9%, respectively, as at end-September 2022.
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2619
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Published by RAM Rating Services Berhad
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Ratings on Sumitomo Mitsui Banking Corporation Malaysia Berhad