MUFG sale of CIMB stake credit positive, says Moody’s

PETALING JAYA: Japan’s Mitsubishi UFJ Financial Group (MUFG) stake disposal in CIMB Group Holdings Bhd is “credit positive” for MUFG, as it frees up capital, and is in line with its strategy to improve capital efficiency, according to Moody’s Investors Service.

Last Wednesday, MUFG’s banking entity The Bank of Tokyo-Mitsubishi UFJ Ltd (BTMU), Japan’s largest banking group, announced it had sold its 4.6% stake in CIMB (Baa1 stable) for about ¥68 billion (RM2.5 billion).

In a note today, the rating agency said although MUFG’s ratio of tangible common equity (TCE) to risk-weighted assets (RWAs) was 9.69% on a Basel III transitional phase-in basis at March 31, 2017, it expects the bank will raise this ratio to around 10%.

Moody’s said it expects that this transaction will allow MUFG to both reduce its RWAs and increase its TCE, and forecast that MUFG’s TCE/RWA ratio will improve by one to seven basis points on a pro forma basis, depending on the investment’s book value.

Before the sale, Moody’s noted that BTMU was CIMB’s fourth-largest shareholder. However, as a minority shareholder, Moody’s said that BTMU was unable to exercise influence on management decisions, which made its stake in CIMB, Malaysia’s second-largest banking group by assets, a drag on MUFG’s capital ratios without much benefit.

Furthermore, Moody’s said MUFG has a standalone subsidiary in Malaysia, that has generated solid returns for the group.

In addition, it said MUFG will maintain its relationship with CIMB as an alliance partner, positioning MUFG as the most prominent Japanese bank that can offer Islamic finance.

“These attributes make more strategic sense for MUFG than keeping the CIMB stake.

“Had Malaysia’s large banks consolidated as we had expected, the stake in CIMB would have been a more worthwhile investment. But large bank mergers have yet to take place, and it is not clear if they will in the foreseeable future.”

Meanwhile, the rating agency said MUFG will likely remain committed to expansion in the nations that make up the Association of Southeast Asian Nations (Asean).

Moody’s said the main vehicle for MUFG’s Asean expansion is Bank of Ayudhya (Baa1 stable, ba1) in Thailand, adding that with a stake of about 77%, MUFG can exert management control and significant influence on Bank of Ayudhya.

The Philippines is another key market for MUFG, which has a 20% stake in Security Bank Corporation (Baa2 stable, baa3), a leading commercial bank there, it added.