RAM Ratings assigns AA1 rating to Maybank's proposed debt programme

Published on 22 February 2012

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’s (a subsidiary set up to issue subordinated notes) outstanding debt instruments have been reaffirmed. Concurrently, RAM Ratings has assigned an AA1 rating to Maybank’s proposed up to RM7 billion Subordinated Note Programme (“the Programme”). The proceeds from the issuance of the subordinated notes under the Programme will be used to fund Maybank’s working capital as well as for general banking and other corporate purposes. The subordinated notes will qualify as tier-2 capital of Maybank subject to compliance with the requirements under Bank Negara Malaysia’s guidelines.

Instrument	Rating Action	Rating	Outlook
Malayan Banking Berhad
RM1.5 billion Subordinated Bonds (2007/2017)1	Reaffirmed	AA1	Stable
RM1.5 billion Islamic Subordinated Bonds (2006/2018)1	Reaffirmed	AA1	Stable
Up to RM4.0 billion Innovative Tier-1 Capital Securities (2008/2073)2	Reaffirmed	AA2	Stable
Up to RM3.5 billion Non-Innovative Tier-1 Capital Securities (2008/2108)2	Reaffirmed	AA2	Stable
Up to RM3 billion Tier-2 Capital Subordinated Note Programme (2011/2031)1	Reaffirmed	AA1	Stable
Proposed up to RM7 billion Subordinated Note Programme1	Assigned	AA1	Stable
Notes: 1 The 1-notch rating differential between Maybank’s AAA long-term financial institution rating and the AA1 ratings of its Subordinated Bonds reflect the subordination of the debt facilities to its senior unsecured obligations. 2 The 2-notch rating differential between Maybank’s AAA long-term financial institution rating and the AA2 ratings of its Innovative and Non-Innovative Tier-1 Capital Securities reflect the deeply subordinated nature and the embedded interest-deferral feature of the hybrid instruments.
Cekap Mentari Berhad
Up to RM3.5 billion Subordinated Notes (2008/2038)	Reaffirmed	AA2	Stable
Note: The up to RM3.5 billion Subordinated Notes are part of the up to RM3.5 billion Non-Innovative Tier-1 Capital Securities transaction. Each issue of Capital Securities will be stapled to the Subordinated Notes issued by Cekap Mentari. The Subordinated Notes carry the same rating as the Non-Innovative Tier-1 Capital Securities, given that Maybank’s payment obligations to Cekap Mentari under the inter-company loan – which will be used to pay coupons on the Subordinated Notes – rank pari passu with the Tier-1 Capital Securities.

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, the Group is the largest domestic banking group in Malaysia, and commands the largest share of loans and deposits in the local banking system. Maybank’s asset-quality indicators remained healthy as at end-September 2011 – its gross impaired-loan ratio (“GIL”) had improved to 3.2% (post-FRS 139 restated GIL ratio as at end-June 2010: 4.7%). The Bank’s credit-cost ratio remained low at an annualised 0.2% in the 3-month period ended 30 September 2011 (“3M FY Dec 2011”). 

During the 3M FY Dec 2011, Maybank recorded a pre-tax profit of RM1.8 billion, which translated into an annualised return on assets of 1.7% and return on equity of 21.1%. In the same span, international operations contributed 26% of Maybank’s pre-tax profit. 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 its recent acquisition of Kim Eng Holdings Limited (a Singapore-based regional securities and investment-banking group). The management aspires towards a 40% contribution from Maybank’s international operations by 2015.
As Malaysia’s flagship bank, Maybank’s funding capabilities are unrivalled – the Group has a large base of low-cost current- and savings-account deposits. With faster loan expansion than deposit growth over the last 2 years, Maybank’s loans-to-deposits ratio had risen to about 90% by end-September 2011 (end-June 2010: 87%). Going forward, the management seeks to bring this ratio down to about 85%-90%. Maybank’s loans-to-deposits ratio falls within the norms of its larger domestic banking peers, but higher than the industry average of about 78%.

Maybank’s overall capitalisation levels are viewed to be sound relative to its asset quality and profit performance. As at end-September 2011, the Group’s overall risk-weighted capital-adequacy ratio (“RWCAR”) stood at 14.3% assuming that the full electable portion under the Dividend Reinvestment Plan (“DRP”) was paid in cash; on the other hand, if the full electable portion was reinvested in Maybank’s shares, the overall RWCAR would come up to 14.9%. The take-up rate on Maybank’s finalised DRP for FYE 30 June 2011 came up to 86.1%. 

For further details on Maybank’s ratings, please refer to the rationale published by RAM Ratings on 6 December 2011.

Media contact
Shireen Ng
(603) 7628 1021
shireen@ram.com.my