MARC has affirmed Malayan Banking Berhad’s (Maybank) financial institution and RM10.0 billion Senior Medium-Term Note (MTN) programme ratings at AAA/MARC-1 and AAA respectively. The outlook on the ratings is stable. The ratings incorporate Maybank’s very strong market position as the largest domestic bank underpinned by a well-established banking franchise as well as its strong capitalisation and funding position. These strengths provide a buffer against slowing loan growth and weakening asset quality metrics. The rating assessment also takes into account the consolidated credit profile of the Maybank group given the strong interlinkages within the group and the potential capital support required from its parent.
At the bank level, Maybank’s loans declined by a marginal 0.4% y-o-y for 1H2016 mainly due to a contraction in the bank’s domestic loan book, attributable to weakening economic conditions. Maybank’s domestic loan book remains largely supported by its subsidiary Maybank Islamic Bhd (AAA/Stable) under its “Islamic first” policy. As at end-June 2016, Maybank Islamic accounted for 53.1% of the group’s total domestic lending. The Maybank group, with a total asset size of RM722.7 billion as at end-June 2016, has a wide coverage domestically and operates in 20 countries, including ASEAN. For 2015, the group registered a lower loan growth of 5.7% y-o-y (excluding the foreign currency conversion effect; with the currency conversion effect, loan growth was at 12.0%) with weaker growth recorded in the group’s key overseas operations, mainly in Singapore and Indonesia. MARC also notes that weak economic conditions regionally have posed increased risk to the bank’s asset quality in recent years.
At the bank level, Maybank’s gross impaired loan (GIL) ratio stood at 1.9% as at end-2015, up from 1.6% at the previous year-end; the GIL rose further to 2.5% as at end-June 2016. The increase in impairments arose mainly from Hong Kong, Singapore and China operations. The level of impairments were mainly related to several large business and corporate loans in the trading, manufacturing and commodity segments in these countries. Domestically, the bank also registered higher impairment of RM4,266.5 million as at end-June 2016 (2015: RM3,805.7 million). At the group level, the GIL rose to 2.3% (2015: 1.9%) mainly contributed by the increase in asset quality weakness in Maybank Islamic. MARC notes that 29% of the impaired loans at the group level were from the restructured and rescheduled loans segment.
MARC observes the bank’s provisioning level has not kept pace with the impairment increase as reflected by the decline in the loan loss reserve ratio to 73.0% as at end-June 2016 (2015: 75.0%); however, comfort is drawn from the bank’s strong capital position. The bank’s Common Equity Tier 1 (CET1) and total capital ratio stood at 15.9% and 19.6%, remaining well above the minimum regulatory requirement of 4.5% and 8.0% respectively as at end-June 2016. At the group level, CET1 and total capital ratios stood at 13.8% and 19.2% respectively. The bank’s capital base remains supported by internal capital generation, the dividend reinvestment plan and issuance of debt capital instruments.
For 1H2016, the bank’s net profit increased by 22.8% y-o-y to RM3,252.7 million attributed mainly to higher dividend income as well as unrealised gain on revaluation of financial assets. As a result, the bank’s cost-to-income ratio showed an improvement to 34.0% (1H2015: 43.5%). Net interest margin (NIM) declined to 1.87% (1H2015: 1.93%) mainly due to a marginal increase in funding costs. At the group level, net profit decreased by 20.5% y-o-y to RM2,650.2 million due to higher impairment charges of RM1,846.8 million (1H2015: RM548.9 million). The impairment charges arose mainly from Maybank Islamic as well as Singapore and Greater China operations. Nonetheless, the bank’s pre-tax pre-provision profit of RM5,167.2 million in 1H2016 was 1.9 times of total new impairments of RM2,715.7 million, which would be sufficient to absorb the impairment charges.
The bank maintains a stable funding profile attributed to its strong banking franchise. Customer deposits marginally increased by 0.4% to RM332.0 billion (2015: RM330.6 billion) while the loan-to-customer deposit ratio stood at 83.9% as at end-June 2016. Maybank’s liquidity position remains well supported by its good access to the capital market with the loan-to-fund ratio remaining healthy at 75.1%. The bank’s current and savings account (CASA) deposits has remained stable at 34.9% (2015: 34.9%), higher than the industry average CASA ratio of 26.2%, reflecting the bank’s strong access to cheaper funding sources. The group’s liquidity coverage ratio of 148% is higher than the minimum requirement of 60% in 2015; the minimum requirement increased to 70% in 2016.
The stable ratings outlook reflects MARC’s expectations that Maybank will sustain its credit profile by prudently managing its loan portfolio and maintaining its capital position against weakening economic trends.
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Contacts: Afeeq Amiri, +603-2082 2256/ afeeqamiri@marc.com.my , Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my
[This announcement is available in the MARC corporate homepage at http://www.marc.com.my ]
---- DISCLAIMER ----
This communication is provided by Malaysian Rating Corporation Berhad (“MARC”) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.
© 2016 Malaysian Rating Corporation Berhad
© Press Release 2016
