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