Bank mergers set to improve credit<\/p>\n
KUALA LUMPUR (AFP): International rating agency Standard and
\nPoor's said yesterday the anticipated increase in mergers among
\nMalaysian banks over the next three years will benefit their
\ncredit quality.<\/p>\n
The agency has assigned credit ratings to nine Malaysian
\nbanks, including state-owned Bank Bumiputra Malaysia Bhd. and
\nPublic Bank Bhd., the country's second and third largest after
\nMaybank in terms of assets.<\/p>\n
Mergers and acquisitions are expected to increase among local
\nbanks as they seek to gain critical mass and Tier-One status,
\nsaid Standard and Poor's analyst Nick Wade.<\/p>\n
Tier One banks are those that have met the central bank's
\nrequirement for a minimum paid-up capital of 500 million ringgit
\n(US$200 million) and are allowed to undertake a wide range of
\nbanking activities.<\/p>\n
\"Thus, in the medium to long term, the mergers should be
\nbeneficial to the credit standing of Malaysian banks,\" Wade said
\nin a statement.<\/p>\n
The anticipated mergers in the local banking industry was
\ntriggered by the merger between DCB Holdings Bhd. and Kwong Yik
\nBank Bhd. last November to form the country's second largest
\nbank.<\/p>\n
Given the expectation for a favorable economy, \"doom and gloom
\nappear to be out of place\" for Malaysian banks, Wade said.<\/p>\n
\"Banks are also taking advantage of beneficial operating
\nenvironment by building healthy buffers in the form of capital
\nand general provisions to assist them in weathering the fiercest
\nof financial storms,\" he said.<\/p>\n
\"The profit outlook remains encouraging despite the expected
\nimpact on margins from increased competition,\" Wade added.<\/p>\n
The agency projects loan growth to continue to rise with focus
\non the manufacturing, infrastructure, property and consumer
\ncredit sectors. Loan growth rose to 28 percent in 1995 from 15
\npercent previously.<\/p>\n
Standard and Poor's assigned an \"A\" rating to Public Bank
\nbased on its strong market position, strong funding base and high
\ncapital ratios but said it must prudently manage rapid growth and
\nregional expansion.<\/p>\n
The agency gave a \"BBB\" rating to Bank Bumiputra based on the
\ngovernment's support but said the bank's problem loans remain
\nabove the industry average and it faces many challenges to regain
\nmarket share.<\/p>\n
Bank of Commerce (M) Bhd., the country's fifth largest in
\nterms of assets, was assigned a \"BBB\" rating based on its
\nimproved earnings and sound capitalization.<\/p>\n
\"Constraints on the rating include uncertainties of erratic
\nbalance-sheet growth, residual high non-performing loans and lack
\nof non-bank business diversity,\" the agency said.<\/p>\n
Standard and Poor's also assigned a \"BBB\" rating to Perwira
\nAffin Bank Bhd. and a \"BB\" rating to Southern Bank Bhd., Multi-
\nPurpose Bank Bhd., Hong Leong Bank Bhd., Ban Hin Lee Bank Bhd.
\nand Sime Bank Bhd.<\/p>\n
Based on interest payment and repayment of principal, \"A\"
\nrated entities have strong capacity, \"BBB\" entities adequate
\ncapacity while \"BB\" entities are regarded as having predominantly
\nspeculative characteristics.<\/p>\n
The ratings were made based on public disclosure of bank
\ninformation and other sources and do not involve analytical
\ndialogues with the nine banks, the agency said.<\/p>",
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