Published on 05 Jun 2018.
RAM Ratings has reaffirmed HSBC Bank Malaysia Berhad’s (the Bank) AAA/Stable/P1 financial institution ratings and the AA1/Stable/P1 ratings of the Bank’s RM500 million Tier-2 Subordinated Bonds (2007/2027). The ratings continue to reflect HSBC Malaysia’s established domestic franchise and sturdy capitalisation as well as the Bank’s superior funding and liquidity profile. The ratings also incorporate our expectation of extraordinary support from the Bank’s ultimate parent, HSBC Holdings plc (the Group), given our view that it is strategically important to the Group.
As part of one of the world’s largest banking groups, HSBC Malaysia benefits from the Group’s global connectivity and technical expertise – which anchor the Bank’s domestic franchise in both retail and corporate banking. HSBC Malaysia’s strength in the retail deposit and cash management space is demonstrated by a high proportion of retail and current and savings account deposits, which made up a respective 43% and 57% of the Bank’s total deposits as at end-March 2018, versus the industry’s 38% and 27%. Further, HSBC Malaysia has consistently clocked in high liquidity coverage and net stable funding ratios that far surpassed the regulatory minimums.
HSBC Malaysia’s capitalisation remained sturdy with common-equity tier-1 (CET-1) and total capital ratios of 14.8% and 18.1%, respectively, as at end-December 2017. Thanks to its strong loan-loss buffers, the Bank’s CET-1 capital ratio saw some upside arising from a write-back in provisions when it implemented Malaysian Financial Reporting Standard (MFRS) 9 in January 2018 – although this was nullified by a top-up of regulatory reserve to conform with Bank Negara Malaysia’s revised requirement on regulatory reserve. Overall, the combined impact on HSBC Malaysia’s CET-1 capital ratio was negligible.
Asset quality-wise, the Bank’s gross impaired loan (GIL) ratio came in slightly lower at 2.1% as at end-December 2017, easing further to 1.9% as at end-March 2018, mainly due to a larger loan base. HSBC Malaysia’s impairment classification policies are more conservative compared to the industry’s – after adjustments to mirror industry practices, the Bank’s GIL ratio would be a considerably lower 1.5% as at end-December 2017. Nonetheless, the Bank’s retail loan portfolio has been a continued source of impairments. To this end, we take comfort in HSBC Malaysia’s strong loan-loss reserve coverage of 116% as at end-March 2018 after adjusting to include regulatory reserve.
HSBC Malaysia reported a lower pre-tax profit of RM1.2 billion in fiscal 2017 (fiscal 2016: RM1.3 billion) amid loftier credit costs, lower net interest income and higher operating expenses. That said, the Bank’s net interest margin stabilised at 2.4% (fiscal 2016: 2.3%) after a few years of margin compression – in line with the industry trend. Although HSBC Malaysia’s earnings have been on a downtrend, its return on risk-weighted assets of 2.2% is still satisfactory.
Analytical contact
Loh Kit Yoong
(603) 7628 1031
Media contact
Padthma Subbiah
(603) 7628 1162
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