RAM Ratings reaffirms Maybank's AAA/P1 ratings

Published on 06 December 2011
RAM Ratings has reaffirmed Malayan Banking Berhad’s (“Maybank” or “the Group”) long- and short-term financial institution ratings at AAA and P1, respectively. At the same time, the respective issue ratings of Maybank and Cekap Mentari Berhad (a subsidiary set up to issue subordinated notes) have been reaffirmed. The ratings reflect Maybank’s significant systemic importance, excellent franchise and sound credit fundamentals.

With an asset base of RM431 billion as at end-September 2011, Maybank is the largest domestic banking group in Malaysia, and commands the largest share of loans and deposits in the local banking system. Maybank’s subsidiaries have strong market positions in their respective businesses. Maybank Islamic Berhad is the largest domestic Islamic commercial bank in terms of assets, while PT Bank Internasional Indonesia Tbk (“BII”, 97%-owned by Maybank), is the ninth-largest commercial bank in Indonesia. The Group has regional investment banking and stockbroking capabilities through its recent acquisition of Kim Eng Holdings Limited, a Singapore-based regional securities and investment banking group, adding to Maybank Investment Bank Berhad’s entrenched market position in the Malaysian investment-banking space. Elsewhere, the Group markets its insurance and takaful products under the “Etiqa” brand, and has a dominant share of an estimated 10%–15% of the domestic general insurance/takaful industry’s gross and net premiums and contributions.

In FY June 2011, Maybank charted a 17% year-on-year increase in pre-tax profit to RM6.3 billion – supported by loan growth, lower credit costs, higher revenues from fees and commissions, and more robust brokerage as well as advisory income. Gross loans from its Singaporean and Indonesian operations had expanded at a faster pace of 35% and 25%, respectively, compared to a more moderate 18% growth for its Malaysian businesses. Notably its credit-cost ratio came in at a low 0.2%, on the back of strong recoveries and reduced impairment charges after the adoption of FRS 139 for loan provisioning. Despite the several increases in Malaysia’s overnight policy rate, Maybank’s net financing margins have been narrowing. Given the typically competitive domestic banking landscape, increasing contributions from BII are expected to sustain Maybank’s group-level net financing margins.

As at end-September 2011, the Group’s asset-quality indicators remained healthy – its gross impaired-loan ratio had eased to 3.2% (post-FRS 139 restated gross impaired-loan ratio as at end-June 2010: 4.7%). As Malaysia’s flagship bank, its funding capabilities are unrivalled – Maybank has a large base of low-cost current- and savings-account deposits. Going forward, we expect the Group’s loans-to-deposits ratio – which stood at 91% as at end-September 2011 - to fall within the 85%-90% range. Notably, Maybank’s overall capitalisation levels are considered sound relative to its asset quality and profit performance. Although we had earlier expected the Group’s capitalisation to be dented by its acquisition of Kim Eng, this has been restored by Maybank’s recent sizeable subordinated debt issues, as well as the reinvestment of dividends under its Dividend Reinvestment Plan.

While the Group’s overseas expansion strategies support earnings diversification, emerging markets entail higher operational and regulatory risks. This has become more apparent of late, with Bank Indonesia’s (the Indonesian central bank) move to potentially impose limits on foreign ownership of Indonesian banks. In FY June 2011, international operations contributed 24% of Maybank’s pre-tax profits. We expect this segment to account for about 30% of the Group’s pre-tax profits in the next 1–2 years, boosted by earnings from Kim Eng. The management aspires towards a 40% contribution from Maybank’s international operations by 2015.

Media contact
Joanne Kek
(603) 7628 1163
joanne@ram.com.my