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Rating Action:

Moody's lowers hybrid Tier 1 capital securities of four Malaysian banks

23 Feb 2010

Approximately US$1 billion of hybrid Tier 1 securities affected

Singapore, February 23, 2010 -- Moody's Investors Service has today downgraded the ratings on the hybrid Tier 1 capital securities of four Malaysian banks, in line with Moody's revised Guidelines for Rating Bank Hybrids and Subordinated Debt, published in November 2009.

The affected banks are AmBank (M) Berhad ("AMBB") and its subsidiary AMBB (L) Capital Ltd ("AMBBC"), CIMB Bank Berhad ("CIMBB") and its subsidiary SBB Capital Corporation ("SBBC"), Malayan Banking Berhad ("MBB") and Public Bank Berhad ("PBB").

This concludes Moody's reviews for possible downgrade that began on 18 November 2009.

Prior to the global financial crisis, Moody's had incorporated into its ratings an assumption that the support provided by national governments and central banks to a troubled bank would, to some extent, benefit subordinated debt holders as well as senior creditors. But, in many cases, systemic support for these instruments has not been forthcoming.

Moody's revised methodology largely removes our previous assumptions of systemic support, resulting in today's rating actions. In addition, the revised methodology generally widens the notching on a hybrid's rating that is based on the instrument's features.

SUMMARY RATING ACTION

The characteristics of Moody's-rated Malaysian banks' hybrid Tier 1 capital securities enable them to be broadly classified into two categories, namely non-cumulative and cumulative. Non-cumulative securities with relatively weak coupon skip triggers are generally notched 3 notches from the bank's Adjusted BCA. On the other hand, cumulative securities with relatively weak coupon skip triggers are generally notched 2 notches below the bank's Adjusted BCA.

The rating of the US$200 million Fixed-to-Floating Rate Step-up Non-cumulative Non-voting Guaranteed Preference Shares issued by AMBB (L) Capital Ltd, AMBB's subsidiary was lowered from Ba2 to B2, which is 3 notches below the Adjusted BCA of Ba2. The outlooks of these hybrid Tier 1 capital securities and AMBB's other ratings are stable.

The rating of the US$200 million Non-Cumulative Guaranteed Preference Shares issued by SBB Capital Corp., CIMBB's subsidiary was lowered from Baa3 to Ba3, which is 3 notches below the Adjusted BCA of Baa3. The rating outlook of these securities is positive and in line with the positive outlook of CIMBB's BFSR; the outlook for the bank's other ratings are stable.

The rating of the S$600 million Capital Securities with Step-up in 2018 issued by MBB was lowered from A3 to Baa2, which is 2 notches below the Adjusted BCA of A3. The outlooks for the bank's Tier 1 capital securities' rating and other ratings are stable.

The rating of the US$200 million Innovative Tier 1 Capital Securities Callable with Step-up in 2016 issued by PBB was lowered from A3 to Baa2, which is 2 notches below the Adjusted BCA of A3. The outlooks for the bank's Tier 1 capital securities' rating and other ratings are stable.

RATING ACTION IN DETAIL

The starting point in Moody's revised approach to rating hybrid securities is the Adjusted Baseline Credit Assessment (Adjusted BCA). The Adjusted BCA reflects the bank's stand-alone credit strength, including parental and/or cooperative support, if applicable. The Adjusted BCA excludes systemic support.

The Adjusted BCA is Ba2 for AMBB and is the same as the BCA, given that parental and/or cooperative support does not apply.

The Adjusted BCA is Baa3 for CIMBB and is the same as the BCA, given that parental and/or cooperative support does not apply.

The Adjusted BCA is A3 for MBB and is the same as the BCA, given that parental and/or cooperative support does not apply.

The Adjusted BCA is A3 for PBB and is the same as the BCA, given that parental and/or cooperative support does not apply.

The main features of the hybrid instruments issued by these banks and a discussion of the way Moody's rates them follow.

The hybrid Tier 1 capital securities of AMBBC and SBBC have similar structures. Each of their hybrid Tier 1 capital securities consists of perpetual preference shares issued by them (with a subordinated guarantee by their parents), the proceeds of which are on-lent to their parents for working capital. Conditions for non-payment of interest include prevention by the regulator; the risk of breaching regulatory capital requirements as a result of the payment; or insufficient distributable reserves to make the payment. Deferred interest is non-cumulative. The preference shares only rank in priority to common equity. Moody's generally rates these securities 3 notches below the banks' Adjusted BCAs.

MBB's hybrid Tier 1 capital securities have a maturity of 60 years. Interest may be deferred if no dividend has been declared or paid on ordinary shares during the 6 months prior to the securities' interest payment dates. However, interest will not be paid if it results in a breach of the minimum capital adequacy ratio. Any deferred interest is cumulative, but subject to a deferral limit. The deferred interest shall be settled with cash raised via the issuance of ordinary shares not exceeding 2% of weighted average shares (including treasury shares) or in the form of non-innovative Tier 1 capital instruments if market condition or share price performance is not supportive of the issuance of ordinary shares. The securities only rank in priority to common equity. Moody's generally rates these securities 2 notches below the banks' Adjusted BCAs.

PBB's hybrid Tier 1 capital securities have a maturity of 30 years. Interest deferral may not be paid if common dividends are not declared or paid during the 12 months prior to the securities' interest payment dates. The interest payments are also cumulative, but subject to a deferral limit. The deferred interest shall be settled with cash raised via the issuance of ordinary shares, subject to market condition or share price performance. Moreover, a breach of the minimum capital adequacy ratio may result in the full redemption of the securities via cash from the sale of ordinary shares, the settlement of which would depend on market condition or the share's price performance. The securities only rank in priority to common equity. Moody's generally rates these securities 2 notches below the banks' Adjusted BCAs.

The last rating actions for MBB and PBB were on November 18 when its hybrid Tier 1 capital securities were put on review for possible downgrade. The last rating action for CIMBB was on December 3, 2009 when the outlook for its Bank Financial Strength Rating ("BFSR") was revised from Stable to Positive. The last rating action for AMBB was on February 22, 2010 when its BFSR was revised from D- to D and Baa2/P-3 deposit ratings were confirmed with stable outlooks.

Please visit www.moodys.com to access the following documents for additional information:

Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt -- 17 November 2009

Frequently Asked Questions: Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt -- 17 November 2009.

Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

AmBank (M) Berhad, headquartered in Kuala Lumpur, had assets of RM86.2 billion as at September 30, 2009.

CIMB Bank Berhad., headquartered in Kuala Lumpur, had assets of RM186.7 billion as at September 30, 2009.

Malayan Banking Berhad, headquartered in Kuala Lumpur, had assets of RM317.0 billion as at September 30, 2009.

Public Bank Berhad, headquartered in Kuala Lumpur, had assets of RM209.0 billion as at September 30, 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 lowers hybrid Tier 1 capital securities of four Malaysian banks
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