MARC has affirmed Malayan Banking Berhad’s (Maybank) long-term and short-term financial institution ratings of AAA/MARC-1 with a stable outlook. The ratings primarily reflect Maybank’s core commercial banking franchise whose sizeable domestic operations, sound asset quality measures, stable funding structure as well as resilient earnings generation continue to underpin the group’s overall credit profile. The ratings also incorporate the consolidated credit profile of Maybank group given the strong inter-linkages within the group and the potential capital support required from the financial holding company.

Maybank is a major operating entity and financial holding company of the Maybank group, which also provides Islamic banking as well as insurance, takaful and investment banking services. The Maybank group is Malaysia’s largest financial service group with total assets of RM560.4 billion as at end-2013 with banking operations in 20 countries, including all South-east Asian countries. The group has continued to strengthen its foothold in this region, particularly in Indonesia and Singapore where stronger loan growth has contributed to the increased composition of overseas loans to 37.9% of total loans in 2013 (2012: 36.7%). At the bank level, Maybank registered higher-than-industry average loan growth in 2013 and has the largest share of domestic banking loans at 18.4% as at end-2013. Nonetheless, loan book grew modestly by 10.5% in 2013 (2012: 10.0%, 2011: 13.4%) due in part to the cumulative effects of the central bank’s stricter guidelines on lending to the household sector. Household lending grew slower at 0.9% in 2013 (2012: 6.3%). MARC observes that working capital loans recorded a higher growth rate at 20.3% in 2013, resulting in an increased proportion of working capital loan to total loans to 37.3% as at end-2013 (2012: 34.3%).

MARC notes that at the bank level, the gross impaired loan ratio has edged lower to 1.6% as at end-2013 (2012: 1.9%) on the back of a 9.3% decline in gross impaired loans on further write-offs and recoveries. Notwithstanding the improvement in gross impaired loans, the bank’s increased exposure to loans for the working capital segment has raised some concerns on potential asset quality weakness given this segment’s higher likelihood of incurring loan impairments. While impaired loans to the working capital segment continued to account for the bulk of total impaired loans at 67.5% as at end-2013 (2012: 64.8%), the segment’s impaired loan ratio has improved to 2.8% from 3.6% as at end-2012. MARC opines that asset quality weakness will remain very manageable given the prudent loan loss buffer with the bank’s loan loss reserves ratio standing at 116.2% as at end-2013 (2012: 106.8%).

In 2013, the bank’s earnings performance continued to be resilient with a 13.5% increase in profit after tax to RM4,886 million. Net interest income expanded by 6.6% in 2013 due mainly to loan growth while non-interest income increased by 19.1% on higher commission and services income as well as net foreign exchange gains. The bank’s net interest margin declined further to 1.99% (2012: 2.07%), pressured by intense competition in the banking sector, albeit moderated by Maybank’s strong core deposit profile. The bank grew its stable and less costly funding source, namely current account and saving accounts (CASA) deposits, by 18.3% in 2013, increasing the proportion of CASA deposits to total customer deposits to 36.7% in 2013 (2012: 35.8%). The strong growth in customer deposits strengthened the loan-to-deposit ratio to 88.6% as at end-2013 (2012: 92.4%). At the group level, profit after tax grew 14.0% to RM6,552 million in 2013, supported by strong operating performance at its major subsidiaries.

The bank’s Basel III Tier-1 and total capital adequacy ratios (CAR) remain strong with both ratios standing at 15.9% as at end-2013, albeit lower than its Basel II Tier-1 and total CAR, both of which stood at 16.3%. The bank’s capital base was supported by its stable earnings generation and Dividend Reinvestment Programme (DRP) which has achieved an average take-up rate of 87.7%. MARC views the bank’s capital adequacy to be healthy in view of the bank’s low gross impaired ratio and its fully provisioned loan losses. At the group level, Maybank group’s total CAR also edged lower to 15.7% as at end-2013 from 16.6% as at end-2012, although its Tier-1 capital ratio improved to 13.1% from 12.8% previously.

The stable ratings outlook incorporates MARC’s view that Maybank will be able to maintain its strong credit profile amid a challenging domestic banking environment. MARC also expects that the group will continue to embark on prudent policies in its pursuit of regional expansion.

Contacts:
Oo Chin Kai, +603-2082 2260/ chinkai@marc.com.my
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.