RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings (FIRs) of Malayan Banking Bhd (Maybank or the Group) and its banking subsidiaries. Concurrently, the ratings of the entities’ sukuk/debt facilities have also been reaffirmed.
“The rating action is premised on Maybank’s dominant market position as the largest bank in Malaysia, its strong funding capabilities and proven management track record. Maybank’s diverse income sources continue to generate healthy operating income before impairment charges. This, together with robust capitalisation, provides the Group with sufficient financial headroom to withstand lingering uncertainties from the COVID-19 pandemic over the next 12-18 months. Considering Maybank’s systemic importance to Malaysia, we believe extraordinary support will come through if needed,” says Ram Ratings.
About 31% of Maybank’s domestic loans were under some form of relief as at mid-November 2021. The flexible eligibility criteria of the recent government-led opt-in loan moratorium led to a jump in loans under relief. Among major banking groups, Maybank has the largest share of corporate loans under such assistance (32% of total corporate loans as at mid-November 2021), which warrants closer monitoring. Weakness in specific corporate borrowers, both domestic and foreign, have driven up the Group’s gross impaired loans (GILs) over the years. Despite the heightened credit risk environment, Maybank’s GIL ratio was a lower 1.9% as at end-September 2021 (end-December 2020: 2.2%), helped by relief measures across the region as well as the write-off of several lumpy exposures.
Even so, the Group has been pre-emptively building up its provision buffers through management overlays and by updating forward-looking macroeconomic variables in its provisioning model – both of which contributed about 40% of loan impairment charges in 9M FY Dec 2021. Consequently, loan loss coverage was a stronger 122.8% as at end-September 2021. The Group’s credit cost ratio is expected to clock in between 70 bps and 80 bps this year and is likely to stay elevated in the near term although management has guided for a potential upside to the credit cost ratio given emerging signs of economic recovery.
Maybank’s net interest margin (NIM) rebounded in 9M FY Dec 2021, climbing to an annualised 2.3% on the back of lower deposit costs and lighter borrowing expenses. The Group anticipates NIM expansion of 10 bps-15 bps for the full year, from the level it achieved in FY Dec 2020. This factors in potential modification losses from recent repayment packages. Benefiting from a marked reduction in net impairment charges, Maybank’s annualised return on risk-weighted assets was 2.6% for 9M fiscal 2021. Increased reserving needs however will keep profitability in check.
“Earnings for FY Dec 2022 will also be suppressed by the one-off prosperity tax of 33% on taxable income in excess of RM100 mil proposed under Budget 2022, which we estimate would have a low double-digit impact on earnings.
Maybank’s capital position continued to be a key rating strength, its post-dividend common equity tier-1 capital ratio standing at a sturdy 14.2% as at end-September 2021. We expect the Group to strike a balance between rewarding shareholders and retaining capital to weather headwinds ahead,” it says.
Maybank Islamic Berhad’s and Maybank Investment Bank Berhad’s FIRs mirror those of the Group, given our view that these core subsidiaries are strategically important to the Group. Maybank Islamic, the Group’s flagship Islamic banking entity, is the largest Islamic bank in Malaysia and is well regarded in the global Islamic finance industry. The Group’s investment banking and stockbroking arm, Maybank Investment, is a prominent name in the local investment banking scene, consistently ranking among the top three in the domestic equity and debt capital market league tables.