Moody’s: MUFG’s sale of CIMB minority stake is credit positive

CIMB Group Holdings Bhd is said to be hiring Rafe Haneef from HSBC Amanah Malaysia Bhd to lead its Islamic banking unit.

PETALING JAYA: Moody’s Investor Service said the sale Mitsubishi UFJ Financial Group’s (MUFG, A1 stable) 4.6% stake or 412 million shares in the CIMB Group Holdings Bhd (Baa1 stable) is credit positive. 

“The sale is credit positive for MUFG because it frees up capital, and is in line with MUFG’s strategy to improve its capital efficiency,” Moody’s said in a statement. 
 
“Although MUFG’s ratio of tangible common equity (TCE) to risk-weighted assets (RWAs) was 9.69% on a Basel III transitional phase-in basis at March 31, we expect that the bank will raise this ratio to around 10%. 

“We expect that this transaction will allow MUFG to both reduce its RWAs and increase its TCE, and forecast that MUFG’s TCE/RWA ratio will improve by one to seven basis points on a pro forma basis, depending on the investment’s book value,” the rating agency said. 

Prior to the sale, Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU, A1/A1 stable, a3), a subsidiary of MUFG was CIMB’s fourth-largest shareholder. 

However, as a minority shareholder, BTMU was unable to exercise influence on management decisions, which made its stake in CIMB, Malaysia’s second-largest banking group by assets, a drag on MUFG’s capital ratios without much benefit.

“MUFG has a standalone subsidiary in Malaysia that has generated solid returns for the group. Also, MUFG will maintain its relationship with CIMB as an alliance partner, positioning MUFG as the most prominent Japanese bank that can offer Islamic finance. These attributes make more strategic sense for MUFG than keeping the CIMB stake,” Moody’s said. 

“Had Malaysia’s large banks consolidated as we had expected, the stake in CIMB would have been a more worthwhile investment. But large bank mergers have yet to take place, and it is not clear if they will in the foreseeable future,” it added. 

The rating agency said MUFG would likely remain committed to expansion in the nations that make up the Association of Southeast Asian Nations (Asean). 

It said the main vehicle for MUFG’s Asean expansion is Bank of Ayudhya (Baa1 stable, ba1) in Thailand. 

“With a stake of about 77%, MUFG can exert management control and significant influence on Bank of Ayudhya. Also, MUFG can use Bank of Ayudhya to expand into other Asean countries. The Philippines is another key market for MUFG, which has a 20% stake in Security Bank Corporation (Baa2 stable, baa3), a leading commercial bank there,” it added.