RAM Ratings reaffirms The Royal Bank of Scotland Berhad's AA2/P1 ratings

Published on 22 August 2011
RAM Ratings has reaffirmed The Royal Bank of Scotland Berhad’s (RBS Berhad or the Bank) long- and short-term financial institution ratings at AA2 and P1, respectively. Concurrently, the rating of the Bank’s RM200 million Subordinated Negotiable Instruments of Deposit has been reaffirmed at AA3. Both long-term ratings have a stable outlook. The 1-notch difference between the long-term ratings reflects the subordination of the debt facility to the claims of senior creditors.



RBS Berhad is a 100%-owned subsidiary of The Royal Bank of Scotland Group plc (the Group). The Bank closely adheres to its parent’s strategies and risk-management framework, while leveraging on its global presence. Notably, RBS Berhad has retained its core business in global banking and markets, providing wholesale banking products and services, following the Group’s decision to exit the retail as well as small- and medium-sized enterprise businesses in 2010.

The aforesaid decision had resulted in the Bank suffering a pre-tax loss of RM7.42 million in FYE 31 December 2010 (FY Dec 2010) (FY Dec 2009: RM10.72 million pre-tax profit), after having incurred related redundancy costs and fixed-asset write-offs.

Going forward, earnings are expected to be more volatile as non-interest income will account for the bulk of RBS Berhad’s income. Its gross income in 1Q FY Dec 2011 almost exclusively consisted of such income and helped RBS Berhad chalk up a pre-tax profit of RM28.50 million. With lending now only constituting a complementary business, the contribution of interest income proved negligible for the quarter.

Meanwhile, RBS Berhad has preserved its sturdy liquidity profile and satisfactory capital position. The Bank holds highly liquid assets such as government-related securities; its liquid-asset ratio still exceeds 100%. As at end-March 2011, its tier-1 and overall risk-weighted capital-adequacy ratios stood at a respective 9.85% and 13.62%.

Given that the Bank’s ratings take into account strong parental support, RAM Ratings will maintain close monitoring on the latest developments involving the Group, with a view to re-evaluating RBS Berhad’s credit ratings if need be. Despite the improvements in the Group’s financials last year, we remain cautious about the progress of its recovery from the global financial crisis in light of its exposure to various external factors, particularly in Europe and the United States.

Media contact
Shankar Jayanathan
(603) 7628 1030
Shankar@ram.com.my