Moody’s Investors Service has placed the deposit and debt ratings of nine Malaysian banks on review for possible downgrade.
The banks affected are AmBank (M) Berhad, CIMB Bank Berhad, CIMB Investment Bank Berhad, EON Bank Berhad, Hong Leong Bank Berhad, HSBC Bank Malaysia Berhad, Malayan Banking Berhad, Public Bank Berhad, and RHB Bank Berhad.
“The review of their debt and deposit ratings will look at the extent to which Malaysia’s ability to provide support to its banking system, if needed, is converging with the government’s own debt capacity as a result of the ongoing global economic and credit crisis,” says Christine Kuo, a Moody’s Vice President and Senior Analyst.
At present the deposit and debt ratings of the nine banks on review receive between one to five notches of systemic support.
“Moody’s believes that most governments are at least as likely, if not more likely, to support their banking systems as they are to service their own debt — a view that has traditionally led to bank ratings often benefiting from significant uplift due to systemic support,” says Kuo.
“However, as the financial crisis continues, the capacity of a country and its central bank to support its banks converges with, and is increasingly constrained by, the government’s own debt capacity,” says Kuo.
“As such, Moody’s will be reassessing the level of systemic support for the banks listed above to determine whether the systemic support they receive needs to be more closely aligned to the government’s local currency bond rating,” says Kuo.
Moody’s will review the specific circumstances of Malaysia to determine the appropriate systemic support for Malaysian bank ratings and the implications for the nine banks that have been identified as being potentially affected.
Factors that Moody’s will consider in its assessment of systemic support include the size of the banking system in relation to government resources, the level of stress in the banking system, the foreign currency obligations of the banking systems relative to the government’s own foreign exchange resources, and changes to the government’s political patterns and priorities.
During the recent global crisis the Malaysia government has implemented a number of pre-emptive measures to ensure the stability of the Malaysian banking system, including the provision of a blanket guarantee until December 2010 to all local and foreign currency deposits with all domestic and locally incorporated foreign banking institutions.
Furthermore, the government has been proactive in supporting the banking system in the current economic downturn by introducing several guarantee schemes to share the credit risk of banks when they extend loans to selective sectors and small- and medium-sized enterprises.
The credit stress in the Malaysian banking system has been muted, but could increase if unemployment rises significantly and the economy turns to recession for a protracted period.
Moody’s notes that the review is unlikely to lead to more than one notch change in the debt and deposit ratings of the institutions under review. It expects to conclude the review over the next few weeks.
For more information, see Moody’s recent report “Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries” available on www.moodys.com.
PREVIOUS RATING ACTION AND PRINCIPAL METHODOLOGIES
The last rating action on AmBank (M) Berhad was on May 4, 2007 when all of its ratings were affirmed after the implementation of the JDA/BFSR methodologies.
The last rating action on CIMB Bank Berhad was on Dec. 15, 2008 when the provisional rating to its stapled securities, which consist of non-cumulative perpetual preference shares and unsecured subordinated notes due 2058, was withdrawn following the postponement of the closing date of the transaction.
The last rating action on CIMB Investment Bank Berhad was on June 28, 2007 when its BFSR/deposit ratings were withdrawn as the bank has operated more like a securities firm following an extensive group restructuring exercise.
The last rating action on EON Bank Berhad was on May 4, 2007 when all of its ratings were affirmed after the implementation of the JDA/BFSR methodologies.
The last rating action on Hong Leong Bank Berhad was on May 4, 2007, when its BFSR was upgraded to C- from D+, its local currency deposit ratings were assigned A2/P-1, its foreign currency deposit ratings were upgraded to A3/P-1 from Baa1/P-2, and its foreign currency debt rating for subordinated obligations was upgraded to A3 from Baa2, after the implementation of the JDA/BFSR methodologies
The last rating action on HSBC Bank Malaysia Berhad was on May 4, 2007, when its local currency deposit ratings were assigned Aa3/P-1. Its BFSR and foreign currency deposit ratings were unchanged.
The last rating action on Malayan Banking Berhad was on July 30, 2008, when its proposed SGD innovative Tier 1 capital securities callable in 2018 were assigned an A3 rating with a stable outlook.
The last rating action on Public Bank Berhad was on May 4, 2007, when its local currency deposit ratings were assigned A1/P-1, its foreign currency debt rating for subordinated obligations was upgraded to A3 from Baa1, and its foreign currency rating for preferred stock was upgraded to A3 from Baa2. Its BFSR and foreign currency deposit ratings were unchanged.
The last rating action on RHB Bank Berhad was on May 4, 2007 when all of its ratings were affirmed after the implementation of the JDA/BFSR methodologies.
The principal methodologies used in rating these banks were “Bank Financial Strength Ratings: Global Methodology” (February 2007) and “Incorporation of Joint-Default Analysis into Moody’s Bank Ratings: A Refined Methodology” (March 2007), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.
The detailed ratings and actions are listed below:
AmBank (M) Berhad:
Foreign currency long-term/short-term deposit ratings of Baa2/P-3 and preference stock rating of Ba2 were placed on review for possible downgrade.
Bank financial strength rating of D- is unaffected and carries a stable outlook.
CIMB Bank Berhad:
Foreign currency long-term/short-term deposit ratings of A3/P-1, foreign currency subordinated debt rating of Baa1, and foreign currency preference stock rating of Baa3 were placed on review for possible downgrade.
Bank financial strength rating of D+ is unaffected and carries a stable outlook.
CIMB Investment Bank Berhad:
Local currency long-term/short-term issuer ratings of A3/P-1 and foreign currency long-term/short-term issuer ratings of A3/P-1 were placed on review for possible downgrade.
EON Bank Berhad:
Foreign currency long-term/short-term deposit ratings of Baa2/P-3 were placed on review for possible downgrade.
Bank financial strength rating of D is unaffected and carries a stable outlook.
Hong Leong Bank Berhad:
Local currency long-term/short-term deposit ratings of A2/P-1, foreign currency long-term/short-term deposit ratings of A3/P-1, and foreign currency subordinated debt rating of A3 were placed on review for possible downgrade.
Bank financial strength rating of C- is unaffected and carries a stable outlook.
HSBC Bank Malaysia Berhad:
Local currency long-term deposit rating of Aa3 was placed on review for possible downgrade.
Bank financial strength rating of C-, local currency and foreign currency short-term deposit ratings of P-1 and foreign currency long-term deposit rating of A3 are unaffected. These ratings carry a stable outlook.
Malayan Banking Berhad:
Local currency long-term deposit rating of A1, foreign currency subordinated debt rating of A3, and foreign currency Tier 1 capital securities rating of A3 were placed on review for possible downgrade.
Bank financial strength rating of C is unaffected and continues to carry a negative outlook. Local currency and foreign currency short-term deposit ratings of P-1 and foreign currency long-term deposit rating of A3 are unaffected; these ratings carry a stable outlook.
Public Bank Berhad:
Local currency long-term deposit rating of A1, foreign currency subordinated debt rating of A3, and foreign currency preference stock rating of A3 were placed on review for possible downgrade.
Bank financial strength rating of C, local currency and foreign currency short-term deposit ratings of P-1 and foreign currency long-term deposit rating of A3 are unaffected. These ratings carry a stable outlook.
RHB Bank Berhad:
Foreign currency long-term/short-term deposit ratings of A3/P-1 were placed on review for possible downgrade.
Bank financial strength rating of D is unaffected and carries a stable outlook.
Standard Chartered Bank Malaysia Berhad:
Bank financial strength rating of C- and foreign currency long-term/short-term deposit ratings of A3/P-1 are unaffected. All ratings carry a stable outlook.
AmBank (M) Berhad, headquartered in Kuala Lumpur, had assets of RM81 billion as of December 2008.
CIMB Bank Berhad, headquartered in Kuala Lumpur, had assets of RM167 billion as of September 2008.
CIMB Investment Bank Berhad, headquartered in Kuala Lumpur, had assets of RM5.6 billion as of September 2008.
EON Bank Berhad, headquartered in Kuala Lumpur, had assets of RM43 billion as of September 2008.
Hong Leong Bank Berhad, headquartered in Kuala Lumpur, had assets of RM80 billion as of March 2009.
HSBC Bank Malaysia Berhad, headquartered in Kuala Lumpur, had assets of RM53 billion as of December 2008.
Malayan Banking Berhad, headquartered in Kuala Lumpur, had assets of RM302 billion as of December 2008.
Public Bank Berhad, headquartered in Kuala Lumpur, had assets of RM199 billion as of March 2009.
RHB Bank Berhad, headquartered in Kuala Lumpur, had assets of RM96 billion as of September 2008.
–www.theasianbanker.com (May 21 2009)–
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