Fitch Ratings said Maybank's long-term IDRs and viability rating (VR) reflected its dominant franchise in Malaysia and able management team, which help to underpin its stable funding and liquidity position, sound capital buffers and steady earnings performance through business cycles.
KUALA LUMPUR: Fitch Ratings has affirmed the long-term foreign- and local-currency issuer default ratings (IDRs) of Malayan Banking Bhd
at “A-”. The outlook is stable.
It said on Monday Maybank's long-term IDRs and viability rating (VR) reflected its dominant franchise in Malaysia and able management team, which help to underpin its stable funding and liquidity position, sound capital buffers and steady earnings performance through business cycles.
Fitch said global trade uncertainty, domestic policy headwinds and a supply overhang in certain property sub-segments are likely to continue to weigh on the operating outlook for Malaysian banks.
“Moreover, Singapore - which accounted for 25% of Maybank's gross loans at end-March 2019 - is also sensitive to any weakening in global trade,” it said.
That said, these markets have proven fairly resilient in past cycles.
Fitch expects Malaysia's GDP growth to soften only slightly to 4.4% in 2019 (2018: 4.7%), backed by a well-diversified economy and export base.
It also pointed out Maybank has also maintained a more vigilant stance and built up balance-sheet buffers over the past several years, which bodes well for its ability to weather any near-term weakness.
Maybank's gross impaired loan ratio of 2.5% remained higher than the Malaysia system average of 1.5% at end-March 2019 - although this was mainly driven by higher problem loans in its corporate book offshore and to a lesser extent, domestically.
The ratio was steady compared with a year ago (end-1Q18: 2.4%) as a large Singapore impairment was offset by other recoveries and write-offs, and the bank has maintained acceptable loan-loss allowances over the period (end-1Q19: 79% of impaired loans; end-1Q18: 88%).
“We expect further pressure on asset quality and credit costs in the current environment, with export-oriented manufacturing, property and construction, and SMEs more at risk.
“However, any fluctuations should remain within the tolerance of the current rating level. Likewise, sustained net interest margin compression and weaker asset quality are likely to weigh on near-term profitability, but we expect operating profit (roughly 2.6% of risk-weighted assets over 2015-1Q19) to remain reasonably resilient nonetheless,” it said.
Maybank's Fitch Core Capital (FCC) and fully-loaded common equity Tier 1 (CET1) ratios of 17.9% and 14.6%, respectively, at end-1Q19 form healthy buffers against unexpected losses.
“The bank counts significant state-linked investment funds as shareholders, which we believe supports its capital access. These funds held 65% of the bank's equity in February 2019, of which 48% was held by a single investor group,” it said.
The loans/customer deposits ratio and all-currency liquidity coverage ratio of 93% and 134%, respectively, at end-March 2019 also indicated comfortable balance-sheet liquidity at the group level.
This is backed mainly by Maybank's franchise strength in Malaysia, while its funding and liquidity positions are tighter in Singapore and Indonesia - its two main offshore markets.
The bank maintains a largely deposit-funded balance sheet, nonetheless, with acceptable funding and liquidity profiles in its major currencies. 44% of total assets were in currencies other than the ringgit at end-2018, reflecting Maybank's multinational operations.
“The Stable Outlook reflects our expectation that Maybank's company profile and balance-sheet strengths will continue to support its overall credit profile over the next 12-18 months,” it said.
Maybank's support rating of “2” and support rating floor of “BBB” reflect Fitch's expectation of a high probability of state support for the bank, if needed.
This takes into account the state's high propensity to provide extraordinary support to Maybank in times of need, as well as its ability to provide such support, as reflected in the sovereign's fiscal position and its long-term rating of “A-”.
“We view Maybank to be of exceptionally high systemic importance domestically, and believe the state's propensity to support the bank would be one of the highest among the local commercial banks.
“This stems from Maybank's dominant domestic market share with close to 20% of system loans and deposits, state-linked major shareholder and strong business relationships with state-linked corporates.
"Maybank's senior notes and medium-term note (MTN) programme are rated at the same level as its long-term foreign-currency IDR. This is because the notes and senior notes issued under the programme constitute direct, unconditional and unsecured obligations of the bank,” Fitch said.
