Published on 08 May 2015
RAM Ratings expects Malayan Banking Berhad
(Maybank or the Group, rated seaAAA/Stable/seaP1 and AAA/Stable/P1) to
be able to organically strengthen its capital base to address the impact
of having to locally incorporate its Singaporean operations. Apart from
the 3 Singaporean banks, Maybank and 3 other foreign banks have been
designated as domestic systemically important banks (D-SIBs) by the
Monetary Authority of Singapore (MAS). The Group has been operating in
Singapore for more than 50 years with an estimated market share of more
than 5%.
Maybank has the option to incorporate either its
entire operations in the city state or only its retail business. “Given
that we expect the local incorporation to take at least 2 years, the
Group will have some time to further strengthen its capital base through
earnings accretion and its well-received dividend reinvestment plan,”
notes Sophia Lee, RAM’s Co-Head of Financial Institution Ratings.
Maybank’s common equity tier-1 (CET-1) capital ratios stood at 11.7%
(consolidated level) and 16.3% (entity level) as at end-December 2014.
MAS requires D-SIBs to hold an additional capital
buffer of 2% on top of the minimum CET-1 capital ratio of 7%. Based on
information provided by Maybank, the Group has accumulated adequate
retained earnings in the city state. As such, Maybank Singapore is
unlikely to require a significant capital injection for its local
incorporation. Given the lower corporate tax rate in Singapore, local
incorporation will bring Maybank some tax benefits.
The D-SIBs concept was introduced by the Basel
Committee on Banking Supervision in 2012 to complement the framework on
global systemically important banks (G-SIBs) established the year
before. Both the G-SIBs and D-SIBs frameworks aim to limit contagion
effects associated with systemically important banks. D-SIBs are
determined based on size, interconnectedness, substitutability,
complexity and other country-specific factors as national authorities
deem fit. Considering this global regulatory trend, we expect a similar
framework to be introduced in Malaysia.
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