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Rating Action:

Moody's concludes review of nine Malaysian banks

20 Jul 2009

CIMB Investment Bank's Ratings and Maybank's Ratings Outlook affected

Singapore, July 20, 2009 -- Moody's Investors Service has concluded the review of the deposit and debt ratings of nine Malaysian banks initiated on May 20, 2009 to examine the systemic support assumption used in Moody's Joint-Default Analysis (JDA) application.

These nine banks are AmBank (M) Berhad, CIMB Bank Berhad, CIMB Investment Bank Berhad, EON Bank Berhad, Hong Leong Bank Berhad, HSBC Bank Malaysia Berhad, Malayan Banking Berhad, Public Bank Berhad, and RHB Bank Berhad.

Recently, Moody's commented on its global review of the support capacity of a government and a central bank for its banking system in the Special Comment titled "Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries."

"Consistent with the analytical criteria specified in that report and in light of Malaysia's current situation and future prospects, Moody's has concluded that the systemic support input for Malaysian bank ratings should be at the A1 level, which is two notches above the country's local currency government debt rating of A3," says John Tham, a Moody's Vice President and Senior Credit Officer.

The banking system's significant size, Moody's expectations that levels of credit stress faced by banks in the economic downturn will be manageable, and evidence of the government demonstrating strong support in times of need underpin the confirmation of eight out of the nine banks' deposit and debt ratings.

After adjusting the systemic support input to A1 from Aa2 and reviewing the systemic support for each rated Malaysian bank, the detailed ratings and actions are listed below:

AmBank (M) Berhad: Foreign currency long-term/short-term deposit ratings of Baa2/P-3 and preference stock rating of Ba2 were confirmed with a stable outlook. Bank financial strength rating of D- is unaffected and carries a stable outlook.

CIMB Bank Berhad: Foreign currency long-term/short-term deposit ratings of A3/P-1, foreign currency subordinated debt rating of Baa1, and foreign currency preference stock rating of Baa3 were confirmed with a stable outlook. Bank financial strength rating of D+ is unaffected and carries a stable outlook.

CIMB Investment Bank Berhad: Local currency long-term/short-term issuer ratings were lowered to Baa1/P-2 from A3/P-1. Foreign currency long-term/short-term issuer ratings were revised to Baa1/P-2 from A3/P-1. All ratings carry a stable outlook. A distinction was made between the ratings of CIMB Investment Bank Berhad and CIMB Bank Berhad to reflect the possibility that support for investment banks may be relatively lower than commercial banks in a systemic crisis as well as the potential for the investment bank to rely on its larger sister company for assistance.

EON Bank Berhad: Foreign currency long-term/short-term deposit ratings of Baa2/P-3 were confirmed with a stable outlook. Bank financial strength rating of D is unaffected and carries a stable outlook.

Hong Leong Bank Berhad: Local currency long-term/short-term deposit ratings of A2/P-1, foreign currency long-term/short-term deposit ratings of A3/P-1, and foreign currency subordinated debt rating of A3 were confirmed with a stable outlook. Bank financial strength rating of C- is unaffected and carries a stable outlook.

HSBC Bank Malaysia Berhad: Local currency long-term deposit rating of Aa3 was confirmed with a stable outlook. Bank financial strength rating of C- is unaffected and carries a stable outlook.

Malayan Banking Berhad: Local currency long-term deposit rating of A1, and foreign currency Tier 1 capital securities rating of A3 were confirmed with a negative outlook. Bank financial strength rating of C is unaffected and continues to carry a negative outlook. Local currency and foreign currency short-term deposit ratings of P-1, foreign currency long-term deposit rating of A3 and foreign currency subordinated debt rating of A3 are unaffected; these ratings carry a stable outlook.

Public Bank Berhad: Local currency long-term deposit rating of A1, foreign currency subordinated debt rating of A3, and foreign currency preference stock rating of A3 were confirmed with a stable outlook. Bank financial strength rating of C, local currency and foreign currency short-term deposit ratings of P-1 and foreign currency long-term deposit rating of A3 are unaffected. These ratings carry a stable outlook.

RHB Bank Berhad: Foreign currency long-term/short-term deposit ratings of A3/P-1 were confirmed with a stable outlook. Bank financial strength rating of D is unaffected and carries a stable outlook.

In the Special Comment mentioned above, Moody's points out that the appropriate reference rating for the capacity of a national government to provide support to banks typically would be the government's own debt rating. Moody's also believes that, for the purpose of determining systemic support capacity, this rating should be adjusted, usually positively, to reflect the non-fiscally dependent measures that both central banks and governments can deploy to support banks.

In deciding whether the local currency-denominated deposit of a bank can be rated higher than the local currency-denominated debt issued by the national government due to systemic support, Moody's considers a number of factors for each banking system. These are the size of the banking sector relative to the government's resources, the level of stress in the banking system and in the economy, the foreign currency obligations of the banking system relative to the government's own foreign currency resources, political and historical patterns, and the possibility of any drastic shift in government priorities.

With regard to Malaysia, the banking system is large as shown by the ratio of banking assets equaling 150% of GDP as of the end of 2008. On the other hand, the credit stress in the Malaysian banking system has been muted, although it could increase if unemployment rises significantly and the economy turns to recession for a protracted period. Moreover, the foreign currency obligations of the banking system -- relative to the economy -- are moderate, and the banks have not relied heavily on foreign currency funds for their operations.

Finally, the political and historical patterns for assessing Malaysia as a highly supportive banking framework are compelling. In Moody's view, Malaysia has a highly supportive banking framework, one characterized by the complete absence of bank deposit defaults in the past several decades.

The Malaysian government was very proactive in supporting the banking system during the Asian financial crisis. During the recent global crisis, it has also implemented a number of pre-emptive measures to ensure the stability of the Malaysian banking system, including the provision of a blanket guarantee until December 2010 to all local and foreign currency deposits with all domestic and locally incorporated foreign banking institutions.

Furthermore, the government has been proactive in supporting the banking system in the current economic downturn by introducing several guarantee schemes to share the credit risk of banks when they extend loans to selective sectors and small- and medium-sized enterprises.

In conclusion, the A1 systemic support input for Malaysian banks is two notches above the A3 local currency government debt rating. The uplift is predicated on Moody's view that the risk of systemic-wide banking crisis is modest and the likelihood of the government "ring-fencing" its own fiscal position from the banking system is low.

PREVIOUS RATING ACTION AND PRINCIPAL METHODOLOGIES

The last rating actions on the nine banks were on May 20, 2009 when their deposit and debt ratings were placed on review for possible downgrade. The detailed rating actions are as follows:

AmBank (M) Berhad: Foreign currency long-term/short-term deposit ratings of Baa2/P-3 and preference stock rating of Ba2 were placed on review for possible downgrade.

CIMB Bank Berhad: Foreign currency long-term/short-term deposit ratings of A3/P-1, foreign currency subordinated debt rating of Baa1, and foreign currency preference stock rating of Baa3 were placed on review for possible downgrade.

CIMB Investment Bank Berhad: Local currency long-term/short-term issuer ratings of A3/P-1 and foreign currency long-term/short-term issuer ratings of A3/P-1 were placed on review for possible downgrade.

EON Bank Berhad: Foreign currency long-term/short-term deposit ratings of Baa2/P-3 were placed on review for possible downgrade.

Hong Leong Bank Berhad: Local currency long-term/short-term deposit ratings of A2/P-1, foreign currency long-term/short-term deposit ratings of A3/P-1, and foreign currency subordinated debt rating of A3 were placed on review for possible downgrade.

HSBC Bank Malaysia Berhad: Local currency long-term deposit rating of Aa3 was placed on review for possible downgrade.

Malayan Banking Berhad: Local currency long-term deposit rating of A1, foreign currency subordinated debt rating of A3, and foreign currency Tier 1 capital securities rating of A3 were placed on review for possible downgrade.

Public Bank Berhad: Local currency long-term deposit rating of A1, foreign currency subordinated debt rating of A3, and foreign currency preference stock rating of A3 were placed on review for possible downgrade.

RHB Bank Berhad: Foreign currency long-term/short-term deposit ratings of A3/P-1 were placed on review for possible downgrade.

The principal methodologies used in rating these banks were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

AmBank (M) Berhad, headquartered in Kuala Lumpur, had assets of RM84.3 billion as of March 2009.

CIMB Bank Berhad, headquartered in Kuala Lumpur, had assets of RM188.4 billion as of March 2009.

CIMB Investment Bank Berhad, headquartered in Kuala Lumpur, had assets of RM5.7 billion as of March 2009.

EON Bank Berhad, headquartered in Kuala Lumpur, had assets of RM42.1 billion as of March 2009.

Hong Leong Bank Berhad, headquartered in Kuala Lumpur, had assets of RM80.1 billion as of March 2009.

HSBC Bank Malaysia Berhad, headquartered in Kuala Lumpur, had assets of RM51.5 billion as of March 2009.

Malayan Banking Berhad, headquartered in Kuala Lumpur, had assets of RM308.8 billion as of March 2009.

Public Bank Berhad, headquartered in Kuala Lumpur, had assets of RM199.2 billion as of March 2009.

RHB Bank Berhad, headquartered in Kuala Lumpur, had assets of RM94.3 billion as of March 2009.

Singapore
John Moh Kan Tham
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308

Singapore
Karolyn C. Seet
Asst Vice President - Analyst
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308

Moody's concludes review of nine Malaysian banks
No Related Data.
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