Published on 05 Apr 2023.
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 2022.
Malaysia’s GDP growth in 2022 surpassed expectations, reaching a robust 8.7% (2021: +3.1%). Low base aside, growth was buoyed by strong domestic consumption and export performance as the economy fully reopened in April 2022 after two years of pandemic movement restrictions. Against this backdrop, the bond market saw a bumper year in 2022 with gross issuance of RM153 bil (2021: RM114 bil), an all-time high. Front-loading of financing to lock in rates also helped pushed up issuance. The bulk of bond and sukuk issuance (circa 40%) emanated from government-linked entities raising funds for infrastructure projects and capital expenditure. We expect bond issuance to normalise to around RM120 bil - RM130 bil in 2023.
Amid the robust economic growth, the negative bias in RAM’s rating actions dissipated during the year, with positive rating actions outnumbering negative ones by a ratio of nearly 3:1. About 3.4% of issuers were upgraded against 1.7% downgrades, while 89% ratings remained unchanged. The majority of issuers on negative outlook were returned to stable without further downgrade of their underlying ratings. Consequently, the downgrade-to-upgrade ratio improved to 0.5 times (2021: 1.2x). This suggests that the credit profile of RAM-rated entities has improved during the year. As at end-December 2022, 93% of RAM’s rated portfolio (by programme value) comprised the three highest rating bands of AAA (43%), AA (39%) and A (11%).
Based on our analysis, the credit metrics and debt protection aptitude of RAM’s rated issuers remain sturdy, with an upside of further positive rating actions in 2023. The Malaysian economy is expected to continue expanding, albeit at a slower pace of 4%-5% in 2023 given the global slowdown, interest rate tightening cycle and inflationary pressures, compounded by a risk of escalating geopolitical tensions. That said, domestic demand remains supported by a firm labour market, accommodative monetary policy and China’s reopening that would revive tourism.
Chuan Shyang Lin
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Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Credit Rating Agencies. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains.
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