RAM Ratings refines criteria for non-operating bank-holding companies, introduces group methodology for banks

Published on 17 June 2015 RAM Ratings today released its updated rating criteria for non-operating bank-holding companies (BHCs), along with a group rating methodology for banks. These publications offer a fresh perspective on our assessment of financial-services companies (FSCs) within banking groups, as well as non-operating BHCs. Banking groups may include a non-operating BHC, and are formed when several FSCs conduct activities under the same corporate umbrella. “Regulatory requirements may compel distinct financial-services business lines to be incorporated as separate legal entities. In essence, these companies may operate much like a division, are managed holistically and share a common operating platform,” explains Joanne Kek, Rating Specialist, Financial Institution Ratings. “As part of a larger banking group, some entities may benefit from support in times of stress,” she adds. RAM’s Group Rating Methodology for Banks (published in June 2015) introduces group credit strength (GCS), a measure of the credit profile of a banking group. The level of expected group support for an FSC considers this GCS, its stand-alone credit strength and strategic importance to the banking group. GCS is also a key component of RAM’s Rating Methodology for Non-operating Bank-Holding Companies (June 2015). A non-operating BHC’s corporate credit rating (CCR) will be driven by the GCS and the extent of its company-level indebtedness. To prepare for group-level capital requirements, non-operating BHCs in Malaysia may explore the issuance of Basel III capital instruments. These securities will be notched down from the CCR of a non-operating BHC. The downward notching adjustments reflect issue-specific risks and are in line with those detailed in our methodology, Rating Bank Securities (November 2013). We highlight that the newly released criteria do not result in any rating changes for the existing banks in RAM’s rating portfolio. These publications can be accessed under the Criteria & Methodology section of our website, www.ram.com.my. Media contact Joanne Kek (603) 7628 1163 joanne@ram.com.my Sophia Lee (603) 7628 1189 sophia@ram.com.my