SINGAPORE – Moody’s Investors Service has affirmed the A3 foreign currency senior unsecured debt and issuer ratings of Export-Import Bank of Malaysia Bhd (Exim) and the bank’s (P)A3 senior unsecured MTN program rating.
At the same time, Moody’s has downgraded the bank’s stand-alone credit profile to b1 from ba3.
The outlook on Exim’s ratings remains stable.
“The A3 long-term ratings of Exim were affirmed because Moody’s maintains its “very high” support assumptions from the government of Malaysia (A3 stable), which results in multiple notches of uplift above the bank’s standalone credit profile,” Moody’s said.
Moody’s very high public support probability for Exim is based on the bank’s government ownership, strong track record of support, status as a development financial institution in Malaysia, and its policy role in providing financial services to Malaysian trade-oriented companies and cross-border businesses.
The ratings agency classifies Exim as a government-related issuer (GRI). As a result of the application of the corresponding rating methodology, Exim’s A3 supported ratings benefit from a multi-notch uplift above its b1 stand-alone credit profile.
Moody’s has also affirmed the A3 long-term ratings of Exim Sukuk Malaysia Bhd, a special purpose vehicle established by Exim as part of its Multicurrency Sukuk Issuance Programme.
“Moody’s has downgraded Exim’s stand-alone credit profile to b1 from ba3 to reflect the weaknesses in some of the bank’s solvency metrics and risk positioning.”
Exim’s impaired loans ratio increased to 13.2% in 2016, from 7.7% in 2015, driven by an 83% increase in the stock of impaired loans in 2016.
According to the bank, it recovered some of its large problem exposures during the first nine months of 2017; however, Moody’s expects that asset quality will remain weak.
As a result of asset quality deterioration, the bank posted a loss of RM227 million in 2016, following several large asset impairments. Moody’s expects Exim to post improved but still low profitability metrics in 2017 and 2018, as the bank builds its loan loss provisions —
which weakened to 37.5% of impaired loans in 2016, from 59.5% in 2015.
The adoption of the MFRS 9 accounting standard on Jan 1, 2018 — which is Malaysia’s equivalent of the IFRS 9 standard — will likely result in further need to increase credit provisions.
Exim’s capital position — while still strong — has nevertheless deteriorated following a period of rapid credit expansion. The bank expects to receive new capital from its shareholder over the coming months, which should provide mild support to its solvency position.
“The stable ratings outlook reflects Moody’s expectations that the bank’s overall credit fundamentals will remain broadly stable in the next 12-18 months. Moody’s does not expect any changes to Exim’s policy status and government ownership.”
Exim’s A3 ratings may move in line with changes in the sovereign A3 rating.
Exim’s stand-alone credit profile could be upgraded if the bank adopts a more risk-averse business strategy that results in improved and sustainable solvency metrics.
Conversely, any signs of weakening links with the government or diminishing policy importance could adversely affect Exim’s A3 ratings. Its stand-alone credit profile could be downgraded if its capital buffer deteriorates substantially.