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RAM Ratings raises outlook on Deutsche Malaysia to positive
Published on 29 Sep 2023.
RAM Ratings has revised the outlook on Deutsche Bank (Malaysia) Berhad’s (Deutsche Malaysia or the Bank) long-term AA1 financial institution rating (FIR) from stable to positive.
The outlook revision is driven by the improvement in the credit profile of Deutsche Malaysia’s parent, Deutsche Bank AG (the Group). Deutsche Malaysia’s AA1/P1 FIRs incorporate the credit strength of its parent and accordingly the Group’s ability to provide financial support to the Bank when required. We believe initiatives adopted under the Group’s transformation plan (2019-2022) have stabilised and strengthened its earnings. Given its strategic shift to more stable businesses, the Group’s credit fundamentals are expected to be well preserved. While ongoing global inflationary pressures may give rise to some risks, the impact on the Group should be manageable.
Apart from parental support, Deutsche Malaysia’s ratings are backed by its entrenched position in Malaysia’s wholesale banking space – particularly in fixed income and currencies – the Bank’s solid liquidity profile, sound risk management and robust capitalisation which provides ample headroom against earnings volatility.
Deutsche Malaysia’s pre-tax profit soared to RM270.0 mil in FY Dec 2022 (FY Dec 2021: RM143.7 mil), translating into a return on risk-weighted assets (RoRWA) of 3.6% (FY Dec 2021: 1.9%). The improvement was mainly attributable to the higher interest rate environment and sizeable foreign exchange gains. The strong earnings performance continued into 1Q FY Dec 2023, seeing the Bank record a pre-tax profit of RM73.3 mil (1Q FY Dec 2022: RM29.1 mil) and an annualised RoRWA of 3.7%.
In view of its heavy involvement in trading and market-making activities, Deutsche Malaysia’s profitability is highly sensitive to market sentiment. External headwinds will weigh on earnings in 2023 but pre-tax profit is still anticipated to be better y-o-y. The Bank’s strong common equity tier-1 capital ratio of 19.4% as at end-March 2023 serves as a sturdy loss absorption buffer against potential fluctuations in earnings.
Analytical contacts
Jeremy Noel Paul
(603) 3385 2556
jeremynp@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, 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.
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Published by RAM Rating Services Berhad
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