MARC has affirmed its long-term and short-term financial institution ratings of AAA/MARC-1 on Malayan Banking Berhad (Maybank). The ratings are underpinned by Maybank’s strong and sustainable domestic banking franchise, stable asset quality and funding structure, good recurring earnings generation and prudent capitalisation. The ratings reflect Maybank’s standalone credit profile without specific uplift for potential systemic support although MARC opines that there is an extremely high likelihood that support would be forthcoming for its banking units from the government should a need arise given its systemic importance to the domestic financial system.

Maybank is Malaysia’s largest bank by asset; its banking assets accounted for a significant 25.5% of the Malaysian banking industry assets as at end-March 2012. Maybank maintains a very strong domestic competitive position, with a highly recognisable brand and significant scale advantages. It is also the fourth largest bank in Southeast Asia, with a good foothold in Singapore which accounted for 29.4% of the bank’s loan book at end-March 2012.

Maybank is the listed operating financial holding company of the Maybank Group, the country’s largest financial services group with operations in banking, insurance, takaful, and securities broking. The ratings also take into account the consolidated credit profile of Maybank and its operating subsidiaries in light of the franchise inter-linkages between the parent and its subsidiaries, as well as that between the group’s banking and non-banking operations, and to the extent that capital support may be required of the holding company should there be a deterioration in the credit strength of operating subsidiaries. MARC observes that consolidated operating performance and capitalisation of the Maybank Group remains strong, underpinned by the adequate underlying profitability of its operating subsidiaries and sound capital management.

Maybank recorded high loan growth of 19.0% in the 12 months to June 30, 2011 (FY2011) (FY2010: 4.6%) with strong growth across most segments of its loan book, notably in retail loans and working capital corporate loans. The recent high loan growth is viewed with some concern as higher levels of delinquencies and impairment could be experienced with the seasoning of the new loans. While the bank’s gross impaired ratio has been trending downwards in more recent periods subsequent to its adoption of Financial Reporting Standard 139 (FRS139) in FY2011, MARC observes that annual loan impairments have been on the rise. Maybank’s gross impaired ratio has come down largely due to write-offs and recoveries of impaired loans, and its loan portfolio expansion. Maybank’s gross impaired loans ratio improved to 2.7% at end-March 2012 from 3.4% at end-June 2011, but its loan loss reserve level dropped to 91.3% as at end-March 2012 from 120.9% at end-June 2010. The declining coverage level of existing impaired loans implies reduced buffers to withstand asset quality pressures in a weaker operating environment.

Maybank liquidity position is supported by a stable and large retail deposit base and a moderate loan-to-deposit ratio of 89.1% as at end-March 2012. The bank continues to maintain appropriate liquidity buffers, as indicated by its liquid asset of 29.9% as at end-March 2012 (end-December 2011: 27.6%). MARC notes that Maybank maintained its market leading position in both demand and savings deposits with market share of 20.5% (FY2010: 20.5%) and 27.9% (FY2010: 27.7%) respectively in FY2011. Maybank also continues to enjoy favourable capital market access.

Maybank’s earning performance continues to be sustained by the strength of its banking franchise, although its results for the three months to March 31, 2012 (1QFY2012) were marked by funding cost pressures and comparatively higher levels of provisioning on loans, offset by an increase in its non-interest income. The bank increased its first quarter net profit to RM1.1 billion, giving an improved annualised return on asset (ROA) of 1.32%. Apart from the bank’s moderating loan growth and reduced net interest margins, other main drivers of the bank’s profitability will be its ability to contain increases in credit and non-interest costs. At group level, a broadly similar positive trend in earnings was observed in 1QFY2012, supported by strong revenue growth in respect of its investment banking, corporate banking, international banking and global markets operations. Maybank Group’s first quarter performance also benefited from the initial consolidation of Kim Eng Holdings’ results.

The bank’s risk weighted capital ratio (RWCR) improved to 14.5% as at end-March 2012 after accounting for 88.5% reinvestment under the bank’s fourth Dividend Reinvestment Plan. The group level RWCR is estimated to be 15.4% as of the same date, based on 88.5% reinvestment rate under its Dividend Reinvestment Plan. The bank’s and group capital adequacy metrics are expected to remain adequately positioned for transition to Basel III.

The stable outlook incorporates MARC’s view that Maybank would be able to maintain its favourable financial profile on the expectation of manageable asset quality and margin pressures, balanced against its substantial core profitability and strong capital levels. 

Contacts:
Lim Mei Ching, +603-2082 2267/ meiching@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.