Fitch upgrade Maybank’s ratings

Fitch removes Maybank’s ratings from Rating Watch Evolving
KUALA LUMPUR, March 12 — Fitch Ratings has today removed Malayan Banking Bhd’s Long-term local and foreign currency Issuer Default Ratings (IDRs) from Rating Watch Evolving and simultaneously affirmed them at ‘A-’ (A minus).

The outlook is stable, the rating agency said in a statement issued from Singapore.

At the same time, the agency has affirmed the bank’s individual rating at ‘B/C’, Support Rating at ‘2’, Support Floor at ‘BBB’, its USD subordinated debt issue at ‘BBB+’ and its SGD Innovative Tier 1 capital securities at ‘BBB’.

The restoration of the stable outlook on the ratings is based on the imminent capital replenishment measures being undertaken for core capital, in the form of a substantially underwritten rights issue which is expected to raise RM5-RM6 billion in new equity.

Existing substantial shareholders of the bank, which includes state-owned Permodalan Nasional Bhd (PNB) and Employees’ Provident Fund (EPF) have provided undertakings to subscribe for close to 90 percent of the rights issue with EPF’s portion (13.7 per cent of the rights issue) subject to a market price condition.

The remaining portion of the rights or 10.6 per cent of the proposed issue, will be underwritten by two external investment banks.

With core capital restored to a higher level, Fitch expects the bank to be better cushioned against the impact of very challenging economic conditions this year.

Based on estimates provided by Maybank, the proceeds from the rights should help to raise regulatory capital ratios to around 11 per cent Tier 1 and 16 per cent Total (capital adequacy ratio) CAR, from 8.1 per cent and 13.5 per cent respectively, at end-December 2008.

Core capital ratio, excluding the other Tier 1 hybrid securities issued in 2008 (amounting to RM6 billion), is expected to improve to around 8 per cent immediately post-rights compared with 5.2 per cent at end-December 2008, which brings the ratio slightly above the levels of a few of its large domestic banking peers at end-2008.

While the agency believes that the impairment write-downs on the value of acquisitions are likely to have a material impact on Maybank’s earnings in the current financial year, the bank’s management expects the bank to stay profitable barring unforeseen circumstances with the impact on capital ratios expected to be neutral.

However, given the uncertainties in the economic conditions and the possibility that core earnings could deteriorate more rapidly than expected, the combined effects of the write-downs and the performance of its core operations on reported earnings and capital will have to be monitored closely in the current financial year.

Fitch will undertake a review of the bank’s ratings if necessary, particularly if the bank’s core capital is affected due to unexpected losses in its underlying banking operations.

An added challenge for Maybank is the management of newly acquired banks in lowly-rated markets like Indonesia, Pakistan and Vietnam which could prove to be an added drag on its balance sheet amidst a tougher operating climate.

But given the moderate exposure to these markets currently, comprising around eight to nine percent of total loans, and in view of the bank’s enhanced capital cushion post-rights, the negative impact on the bank’s balance sheet is expected to be largely contained.

Established in 1960, Maybank is Malaysia’s largest domestic bank, accounting for 18 per cent of system assets.

State-controlled entities and funds own about 69 per cent of the banking group, the rating agency said. — Bernama