KUALA LUMPUR: RAM Ratings is positive on all rated entities under RHB Capital Bhd (RHB Capital) and Malaysia Building Society Bhd
(MBSB), and reinstated the stable outlook on the rated entities under CIMB Group Holdings Bhd (CIMB).
RAM has reaffirmed the AAA/P1 ratings of CIMB’s key banking subsidiaries as credit profiles of the merged entities would remain commensurate with the existing ratings.
It said the positive watch on RHB Capital’s core banking entities (AA2/P1) and MBSB (A2/P1) reflects its view that the credit standing of these entities will be strengthened to the highest rating on its national scale when they become part of the proposed largest banking group in Malaysia.
The merged bank will enjoy a dominant franchise in Malaysia, with stronger financial muscle to pursue regional strategies and cement its position as the fourth-largest Asean banking group.
With market shares of Malaysian deposits and loans in excess of 20%, its systemic importance would be enhanced.
In addition, the enlarged bank would have a more diversified business and geographical mix. Nonetheless, in view of the scale and complexity of the merger exercise, challenges in talent retention, corporate culture and IT system integration could arise.
That said, revenue and cost synergies should emerge over time if the merger process is well executed, it noted.
While the proposed share-swap deal will mitigate the impact of the merger on capitalisation, the pro forma common equity Tier 1 (CET-1) capital ratio of the merged entity will still lag behind that of the top 3 regional players.
The CET-1 capital ratio would stand at about 9% immediately upon consolidation, with a management target of 9.5%. On the other hand, the pro forma double leverage ratio of RHB Capital – the surviving non-operating financial holding company – would be at a comfortable level of less than 1.20 times.
"RAM views the proposed formation of the mega-Islamic bank as being in line with the nation’s aspiration to develop Malaysia into a key international Islamic financial hub.
"This would entail the acquisition of assets and liabilities of RHB Islamic and MBSB by CIMB Islamic. The merged Islamic bank would operate with its own branch network and infrastructure. One of the key objectives of the creation of a mega-Islamic bank is to capture cross-border Islamic finance transactions and strategic partner(s) may be brought in at a later stage.
"While MBSB would put a drag on the mega-Islamic bank’s asset quality on consolidation, the AAA/P1 ratings of CIMB Islamic as the surviving Islamic banking entity reflect our view that it will remain strategic to the enlarged group, given its role as the Islamic arm," it said.
Following the above, RAM has revised MBSB’s RM495mil Tranche 1 Structured Covered Sukuk Commodity Murabahah (Covered Sukuk) rating watch from developing to positive.
"We note that the rating action on the Covered Sukuk is purely driven by the potential upside of MBSB’s financial institution ratings post merger and not the cover assets. Similar rating action has also been taken on RHB Bank-guaranteed issues.
"The affected issues are Tropicana Corporation Bhd’s Tranche 1 CP/MTN of up to RM300mil (2012/2019) and Mecuro Properties Bhd’s Guaranteed Class D1 under the RM900mil Nominal Value Bonds (2012/2019)," it noted.
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