Moody's: Maybank's solid capital base provides buffer against rising problem assets

SINGAPORE: Malayan Banking Bhd (Maybank) faces rising problem assets in Singapore and Hong Kong – two of its key markets, but its strong buffers mitigate the related risks, according to Moody’s Investors Service.

“The rising problem assets in Singapore and Hong Kong reflect primarily idiosyncratic risk, and we expect in the longer term that Maybank’s credit profile will benefit from its presence in these otherwise low-risk markets,” said Moody’s vice-president and senior credit officer Eugene Tarzimanov.

“Maybank’s solid and growing capital base also provides the bank with a good buffer against rising problem assets, and will enable it to maintain its credit standing in line with its current ratings,” added Tarzimanov.

Moody’s conclusions are contained in its report “Malayan Banking Bhd: Increased Regional Risks Mitigated by Strong Buffers”, which points out that Maybank’s problem loans in Singapore are mostly related to oil and gas accounts, while those in Hong Kong stem from a small number of large problem loans.

Singapore is Maybank’s most important foreign operation, accounting for 25% of its gross loans as of September 2016. While Hong Kong accounted for a less material 2% share of its loan book, a jump in delinquencies there has put its Hong Kong problem loans ratio well ahead of other markets, from virtually nil in 2015.

Consequently, the rising problem assets in these markets pushed the bank’s problem loans ratio to 2.2% in September 2016, from 1.9% at end-2015.

Although the performance of domestic Malaysian loans also mildly weakened, this was in line with Moody’s expectation and mainly came from the business and corporate banking divisions, including the commodity sectors.

Despite the weakening conditions, Moody’s said the bank’s credit profile benefits from its presence in the two developed markets, given the generally less volatile credit and economic conditions, stable employment and better protection of creditor rights, relative to emerging markets.

This consideration is also reflected in Maybank’s macro profile of “strong”, which is higher than the “strong-” macro profile for Malaysia, and results from the higher macro profiles of both Singapore and Hong Kong. The macro profile, which captures the risks of a bank’s domestic and regional operations, is a key input that supports Maybank’s a3 baseline credit assessment.

The bank also benefits from its strong and rising capitalisation, adequate problem loan coverage, good profitability, and solid liquidity and funding profiles.