Moody's reviews ratings of four Malaysian banks

Moody's reviews ratings of four Malaysian banks

KUALA LUMPUR (AFP): Moody's Investors Service yesterday placed four leading Malaysian banks under review for possible downgrades of their credit ratings, citing mounting pressure on the financial system.

The four were the country's top three banks -- Malayan Banking Bhd., Bank Bumiputra Malaysia Bhd. and Public Bank Bhd. -- and Sime Bank Bhd., the fifth largest.

The move was "a result of the increasing pressures on the major financial institutions in Malaysia, which are undermining asset quality and liquidity in the system," Moody's said in the statement.

The New York-based credit assessor said "the Malaysian economy continues to suffer from both intrinsic weaknesses and the effect of financial crises in other Asian countries, which is eroding confidence."

It noted that interest rates remained high while the local currency, property values and share prices continued to fall.

"Asset quality and funding problems have already severely hit local investment banks and stockbrokers, as well as finance companies. Many of these entities have links with local banks," it said.

Given the government's recent intention to consolidate the financial system, Moody's warned that it "could lead to a dilution of the financial strength of healthier institutions."

The agency also noted "the extent of the Malaysian government's pervasive influence on the direction of Malaysia's economic development and on its business structures, and the lack of transparency with which it has pursued its objectives."

"These factors heighten the risk that mergers would be forced on some institutions on unfavorable terms, which could lead to longer term risks in the financial system," it said.

Under review are the Baa-1 long-term ratings and prime-2 short term ratings for Malayan Banking, Bank Bumiputra and Public Bank along with the Baa-2 and prime-3 ratings for Sime Bank.

Malayan Banking's A-3 rating for subordinated debt is also being reviewed along with the financial strength ratings of D for Bank Bumiputra and Sime Bank. The financial strength ratings of C-plus for Malayan Banking and C for Public Bank were already under review for possible downgrades.