S&P Cuts Outlook on Malaysian Banks on Household Debt Concerns

November 27, 2013 Leave a comment

S&P Cuts Outlook on Malaysian Banks on Household Debt Concerns

Standard & Poor’s cut its credit outlook for four Malaysian lenders on concern that rising home prices and household debt are contributing to economic imbalances in the country. The credit ratings company revised its outlook to negative from stable for CIMB Group Holdings Bhd. (CIMB), AmBank (M) Bhd., RHB Bank Bhd. and sister company RHB Investment Bank Bhd. It also lowered its long-term Asean regional scale rating on CIMB to axBBB+ from axA-, S&P said in an e-mailed statement today.“The negative outlook recognizes the potential for deterioration in the banks’ asset quality and financial profile, if the consumer debt burden proves excessive in an unfavorable economic scenario,” S&P analysts Ivan Tan and Deepali V. Seth wrote in the report.

Ratings companies have sent mixed signals on Malaysia’s credit worthiness as Prime Minister Najib Razak seeks to rein in the budget deficit. Fitch Ratings lowered its outlook on the nation’s A- sovereign rating to negative in July on public debt concerns. Moody’s Investors Service raised the outlook on the country’s A3 debt to positive this month, citing improved prospects for fiscal consolidation and macroeconomic stability.

S&P rates Malaysia A-, its fourth-lowest investment grade. Najib cut state subsidies and set a date to introduce a goods and services tax in April 2015 during his Oct. 25 budget address.

“The banks do face an increased risk, but it may be premature to view it negatively,” Yeah Kim Leng, chief economist at local ratings company RAM Holdings Bhd., said by phone in Kuala Lumpur today. “In view of the improving economic outlook, all those risks emanating from high household leverage and high property prices may not warrant such a negative view.”

Property Curbs

Malaysia’s economy is projected to expand by 5 percent next year, up from an estimated 4.5 percent in 2013, according to economists’ forecasts compiled by Bloomberg.

The nation’s central bank shortened the maximum length on mortgages in July, saying household indebtedness had risen by an average 12 percent per annum in the past five years. Last month, the government said it will stop developers from helping home buyers by absorbing some interest payments on loans. It also raised the capital gains tax to 30 percent on homes sold within five years to curb speculation.

“The negative outlook reflects the possibility that we may lower the ratings on these financial institutions if the growing economic imbalances lead us to a more negative view of the environment in which Malaysian banks operate,” S&P said in its report.

CIMB shares fell 0.8 percent to 7.57 ringgit as of 4:15 p.m. in Kuala Lumpur. RHB Capital Bhd. (RHBC), which owns RHB Bank and RHB Investment, was 1.8 percent lower at 7.71 ringgit. AMMB Holdings Bhd., which owns AmBank, was unchanged.

To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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