MOODY'S AFFIRMS MAYBANK'S RATINGS DUE TO ITS STRONG BUFFERS AGAINST RISKS

KUALA LUMPUR, Aug 7  -- Moody's Investors Service has affirmed the A3 long-term foreign currency deposit and A3 long-term foreign currency senior unsecured debt ratings of Maybank with a stable outlook.

The global credit rating agency today also affirmed the bank's baseline credit assessment (BCA) and adjusted BCA of a3, and the bank's long-term foreign currency subordinated debt rating of Baa2.

In a statement, Moody’s said the affirmation of Maybank's A3 ratings and a3 BCA reflected its view that the bank's financial performance would remain resilient, underpinned by its robust track record over the past decade, strong capital buffers, favourable funding and ample liquidity.

The rating action also takes into account Moody's expectation of a moderate strain on the bank's asset quality and profitability due to the economic disruption caused by the COVID-19 outbreak.          

“Maybank's capital is strong, supported by the bank's dividend reinvestment plan and modest credit growth. The bank's tangible common equity as a percentage of risk-weighted assets of 19.1 per cent as of March 31, 2020, exceeded that of its peers in the region and provides ample buffer against risks,” it said.

Funding and liquidity are the strengths of Maybank, underpinned by its position as Malaysia's largest bank by assets. The bank has a strong deposit base and good market access, while its liquidity buffer is in line with the regional peers.

Moody's said in the past few years, the asset quality of Maybank's overseas loans -- which are mainly in Singapore and Indonesia -- had deteriorated due to the bank's relatively highly concentrated loan exposures to sectors such as oil and gas, shipping and structured trade credit, among others.

The gross impaired loan ratios for the bank's operations in Singapore and Indonesia registered 4.0 per cent and 4.9 per cent, respectively, as of March 31, 2020, compared to 2.0 per cent for Malaysia.

Despite the weakening in asset quality, Maybank had de-risked its international loan book and reduced its concentration to large borrowers, the rating agency said.

“As such, Moody's does not expect further material deterioration in the quality of the bank's international corporate loans,” it added.

In line with the trend for other peers in the region, Moody's expects the quality of Maybank's retail and small and medium-sized enterprise (SME) loans to deteriorate due to the economic disruptions caused by the coronavirus outbreak in the various countries of its operations.

Based on data as of May 2020, about 60 per cent of the bank's loans are under repayment moratoriums until October 2020. Moody's expects impaired loans will increase once the loan deferment period ends. Credit costs will also increase because of the strain on asset quality and will hurt profitability.

“However, Maybank's strong loss-absorbing buffers put the bank in a comfortable position to weather economic shock,” it said.

According to Moody's, an upgrade of Malaysia's A3 sovereign rating would likely lead to an upgrade of Maybank's A3 deposit rating, on account of the government support uplift incorporated into its rating.

Maybank's a3 BCA is already at the same level as Malaysia's sovereign rating, and its BCA will not be upgraded without a sovereign upgrade given the credit linkages between the bank and the government.

The outlook on Maybank's ratings could be revised to negative if the sovereign rating outlook was revised to negative, or there was a significant weakening in the bank's standalone credit profile, resulting in a multi-notch downgrade of its BCA, Moody's said.

Moody's could downgrade the bank's BCA if there was a material decline in the capital because of a strain on asset quality and profitability. It could also downgrade Maybank's BCA if the bank continued to experience large defaults in its international operations, leading to a weakening of asset quality and profitability.

-- BERNAMA