MARC
has affirmed Malayan Banking Berhad’s (Maybank) financial institution and
RM10.0 billion Senior Medium-Term Note (MTN) programme ratings at AAA/MARC-1
and AAA respectively. The outlook on the ratings is stable.
The ratings incorporate Maybank’s very strong market
position as the largest domestic bank underpinned by a well-established banking
franchise as well as its strong capitalisation and
funding position. These strengths provide a buffer against slowing loan growth
and weakening asset quality metrics. The rating assessment also takes
into account the consolidated credit profile of the Maybank group given the
strong interlinkages within the group and the potential capital support
required from its parent.
At the bank
level, Maybank’s loans declined by a marginal 0.4% y-o-y for 1H2016 mainly due
to a contraction in the bank’s domestic loan book, attributable to weakening
economic conditions. Maybank’s domestic loan book remains largely supported by
its subsidiary Maybank Islamic Bhd (AAA/Stable) under its “Islamic first”
policy. As at end-June 2016, Maybank Islamic accounted for 53.1% of the group’s
total domestic lending. The Maybank group, with a total asset size of RM722.7
billion as at end-June 2016, has a wide coverage domestically and operates in
20 countries, including ASEAN. For 2015, the group registered a lower loan
growth of 5.7% y-o-y (excluding the foreign currency conversion effect; with
the currency conversion effect, loan growth was at 12.0%) with weaker growth
recorded in the group’s key overseas operations, mainly in Singapore and
Indonesia. MARC also notes that weak economic conditions regionally have posed
increased risk to the bank’s asset quality in recent years.
At the bank
level, Maybank’s gross impaired loan (GIL) ratio stood at 1.9% as at end-2015,
up from 1.6% at the previous year-end; the GIL rose further to 2.5% as at
end-June 2016. The increase in impairments arose mainly from Hong Kong,
Singapore and China operations. The level of impairments were mainly related to
several large business and corporate loans in the trading, manufacturing and
commodity segments in these countries. Domestically, the bank also registered
higher impairment of RM4,266.5 million as at end-June 2016 (2015: RM3,805.7
million). At the group level, the GIL rose to 2.3% (2015: 1.9%) mainly
contributed by the increase in asset quality weakness in Maybank Islamic. MARC
notes that 29% of the impaired loans at the group level were from the
restructured and rescheduled loans segment.
MARC observes
the bank’s provisioning level has not kept pace with the impairment increase as
reflected by the decline in the loan loss reserve ratio to 73.0% as at end-June
2016 (2015: 75.0%); however, comfort is drawn from the bank’s strong capital
position. The bank’s Common Equity Tier 1 (CET1) and total capital ratio stood
at 15.9% and 19.6%, remaining well above the minimum regulatory requirement of
4.5% and 8.0% respectively as at end-June 2016. At the group level, CET1 and
total capital ratios stood at 13.8% and 19.2% respectively. The bank’s capital
base remains supported by internal capital generation, the dividend
reinvestment plan and issuance of debt capital instruments.
For 1H2016,
the bank’s net profit increased by 22.8% y-o-y to RM3,252.7 million attributed
mainly to higher dividend income as well as unrealised gain on revaluation of
financial assets. As a result, the bank’s cost-to-income ratio showed an
improvement to 34.0% (1H2015: 43.5%). Net interest margin (NIM) declined to
1.87% (1H2015: 1.93%) mainly due to a marginal increase in funding costs. At
the group level, net profit decreased by 20.5% y-o-y to RM2,650.2 million due
to higher impairment charges of RM1,846.8 million (1H2015: RM548.9 million).
The impairment charges arose mainly from Maybank Islamic as well as Singapore
and Greater China operations. Nonetheless, the bank’s pre-tax pre-provision
profit of RM5,167.2 million in 1H2016 was 1.9 times of total new impairments of
RM2,715.7 million, which would be sufficient to absorb the impairment charges.
The bank
maintains a stable funding profile attributed to its strong banking franchise.
Customer deposits marginally increased by 0.4% to RM332.0 billion (2015:
RM330.6 billion) while the loan-to-customer deposit ratio stood at 83.9% as at
end-June 2016. Maybank’s liquidity position remains well supported by its good
access to the capital market with the loan-to-fund ratio remaining healthy at
75.1%. The bank’s current and savings account (CASA) deposits has remained
stable at 34.9% (2015: 34.9%), higher than the industry average CASA ratio of
26.2%, reflecting the bank’s strong access to cheaper funding sources. The
group’s liquidity coverage ratio of 148% is higher than the minimum requirement
of 60% in 2015; the minimum requirement increased to 70% in 2016.
The stable
ratings outlook reflects MARC’s expectations that Maybank will sustain its
credit profile by prudently managing its loan portfolio and maintaining its
capital position against weakening economic trends.
Contacts:
Afeeq Amiri, +603-2082 2256/ afeeqamiri@marc.com.my,
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.
October 21,
2016
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