S&P GLobal revises outlook on 5 Malaysian banks

KUALA LUMPUR: S&P Global Ratings has revised its outlook on five Malaysian banks – Malayan Banking Bhd (Maybank), CIMB Bank Bhd, Public Bank Bhd, RHB Bank Bhd and AmBank (M) Bhd – from “stable” to “negative”.

At the same time, the rating agency said it is affirming all its ratings on the banks, given its base-case expectation that these banks’ stand-alone credit profiles (SACPs) have adequate buffers to withstand difficult operating conditions in 2020 and 2021.

S&P Global has an ‘ A-’ longterm and ‘A-2’ short-term issuer credit ratings on Maybank, CIMB

Bank, and Public Bank, and ‘BBB+’ long-term and ‘A-2’ shortterm issuer credit ratings on RHB Bank and AmBank.

It said the rating actions on the banks follow its outlook revision on the sovereign credit ratings on Malaysia (foreign currency A-/Negative/A-2; local currency A/Negative/A-1), reflecting additional downside risk to the government’s fiscal metrics, due to the weak global economic climate and a heightened degree of policy uncertainty.

“We expect these banks to continue to benefit from external support from the sovereign over the next 12-24 months, although the sovereign’s creditworthiness itself could come under pressure.

“Our ratings on all five banks could fall by a notch in case of a downgrade of the sovereign in the next 18-24 months,” it said in a statement.

It said the ratings on Maybank, CIMB Bank and Public Bank would continue to be capped by its sovereign credit ratings as these banks would not likely able to withstand the stress associated with a sovereign default.

Meanwhile, the ratings on RHB Bank and Ambank could be lowered in case of a sovereign downgrade or a deterioration in their SACP, S&P Global said.

“Our ratings on these two banks currently incorporate one notch uplift of government support from their ‘ bbb’ SACP, reflecting a moderately high likelihood of government support,” it said.

S&P Global noted that it expects the banking sector’s nonperforming loan (NPL) ratio and credit costs to increase to 2.8 per cent of total loans and 66 basis points (bps) of gross loans by the end of 2020.

“The sector’s NPL ratio and credit costs are likely to stay at relatively high levels of 3.9 per cent and 62bps in 2021 as we expect unemployment conditions to remain challenging in 2021.

“The blanket moratorium on loan repayments by all retail and small- and mid-sized enterprise clients could result in lower actual NPLs and credit losses this year compared with our forecasts.

“However, we expect banks to start proactively increasing provisioning, given the significantly weakening economic prospects and business outlook,” it said.