Moody's Investors Service has assigned Counterparty Risk Ratings (CRRs) to eight rated Malaysian banks and their branches.
In a statement today, Moody's said CRRs were opinions of the ability of entities to honour the uncollateralised portion of non-debt counterparty financial liabilities (CRR liabilities) and reflect the expected financial losses in the event such liabilities were not honoured.
The eight Malaysian banks are CIMB Bank Bhd, CIMB Islamic Bank Bhd, HSBC Bank Malaysia Bhd, Hong Leong Bank Bhd, Malayan Banking Bhd (Maybank), Public Bank Bhd, RHB Bank Bhd, and Standard Chartered Bank Malaysia Bhd (StandChart).
For Local currency long-term Counterparty Risk Rating, Moody's rated the eight banks and their branches between A1 and A3; Local currency short-term Counterparty Risk Rating between P-1 and P-2; Foreign currency long-term Counterparty Risk Rating between A1 and A3; and Foreign currency short-term Counterparty Risk Rating between P-1 and P-2.
CRR liabilities typically relate to transactions with unrelated parties.
Citing examples, Moody's said CRR liabilities included the uncollateralised portion of payables arising from derivatives transactions and the uncollateralised portion of liabilities under sale and repurchase agreements.
CRRs are not applicable to funding commitments or other obligations associated with covered bonds, letters of credit, guarantees, services and trustee obligations, and other similar obligations that arise from a bank performing its essential operating functions, it said, adding that CRRs do not carry outlooks.
Moody's also outlined factors that could lead to an upgrade or downgrade of the CRRs.
Taking Maybank as the largest bank in Malaysia, Moody's could upgrade Maybank's A3 deposit ratings if Moody's upgrades Malaysia's A3 sovereign rating.
As Maybank's A3 Baseline Credit Assessment (BCA) is at the same rating level as the sovereign rating, Moody's said it would unlikely raise the bank's BCA in the absence of a sovereign upgrade.
Moody's said it could downgrade Maybank's BCA of A3 if the bank's asset quality, capital adequacy, profitability, liquidity or funding structure deteriorated materially.
Moody's could also downgrade the BCA if the bank materially increases its exposure to borrowers in countries that Moody's considers riskier than Malaysia.
Such countries would typically have a Macro Profile lower than Malaysia's Strong- Macro Profile, it said.
Maybank has the biggest assets totalling RM769.6 billion as at March 31, 2018; followed by CIMB RM432.7 billion; Public Bank RM398.2 billion; RHB RM234.6 billion; Hong Leong RM197.3 billion; CIMB Islamic RM92.4 billion; HSBC RM79.5 billion; and StanChart RM47.7 billion.
Putting the rational behind the ratings, Moody's said CRRs assigned to the eight banks were in line with the Counterparty Risk Assessments (CR Assessments) already assigned to the same banks.
Moody's considers that Malaysia (A3 stable) does not have an operational resolution regime, in assigning CRRs to the Malaysian banks subject to this rating action, hence, it applies its basic Loss Given Failure (LGF) approach.
Moody's basic LGF analysis positions CRRs in line with the banks' CR Assessments, which are typically one notch above their adjusted BCA, prior to government support.
The CRRs also incorporate zero to one notch of uplift, due to Moody's assessment of government support for the eight banks in times of need, based on the banks' systemic importance in Malaysia.
The uplifts are in line with those applied to the CR Assessments, it said.
Source: NAM NEWS NETWORK