RAM reaffirms Deutsche Malaysia’s AA1/Stable/P1 ratings

KUALA LUMPUR: RAM Ratings has reaffirmed the AA1/Stable/P1 financial institution ratings of Deutsche Bank (Malaysia) Bhd (Deutsche Malaysia).

The ratings reflected RAM’s expectation that the bank will continue to enjoy parental support from Deutsche Bank AG (Deutsche Bank) while leveraging on the latter’s international network and expertise when servicing its clients.

Deutsche Bank is the largest bank in Germany and a leading global bank, with 1.4 trillion euros of assets as at end-June 2018.

The group returned to the black in financial year (FY) December 2017 with a pretax profit of 1.2 billion euros after two consecutive years of losses, due to the absence of significant litigation and goodwill impairment charges.

The group’s common equity tier-1 (CET-1) capital ratio stood at a robust 13.7 per cent as at end-June 2018, boosted by a eight billion euros rights issue in the first half of 2017 (1H17).

Deutsche Bank’s liquidity is also healthy, its liquidity coverage ratio (LCR) averaging 145 per cent in 1H FY December 2018, complemented by liquidity reserves of 279 billion euros.

Asset quality remains sound, with the group’s impaired financial assets at amortised cost at 1.4 per cent of the total as at end-June 2018 (end-December 2016: gross impaired loan ratio of 1.8 per cent), while its credit cost ratio clocked in at a lower nine basis points (bps).

Deutsche Malaysia has an entrenched franchise in the domestic wholesale banking arena, particularly in forex and interest rate derivatives.

The nature of its business, however, renders its profit performance more volatile than that of commercial banks. The bank posted a strong pretax profit of RM274 million in fiscal 2017 (fiscal 2016: RM195 million), which was driven by enhanced trading income as well as higher net interest income.

The first day of the adoption of the Malaysian Financial Reporting Standard 9 (MFRS 9) saw an RM8.7 million increase in its equity base (net of tax), largely contributed by a RM11.5 million write-back of collective provisions.

As at end-March 2018, Deutsche Malaysia’s CET-1 capital ratio stood at a sturdy 19.8 per cent. The bank’s liquidity profile is solid, with its Basel III LCR averaging 142 per cent in both fiscal 2017 and the first quarter (1Q) fiscal 2018.