||Asean Affairs 27 June 2013
Moody's ups RHB Bank's bank financial strength rating
KUALA LUMPUR: Moody's Investors Service has affirmed RHB Bank Bhd's foreign currency deposit ratings and raised its bank financial strength rating (BFSR) following improvement in the key fundamental credit factors.
The ratings agency had on Wednesday affirmed bank's A3/P-2 foreign currency deposit ratings. It also raised the BFSR/baseline credit assessment (BCA) of RHB Bank to D+/ba1, from D/ba2, which previously carried a positive outlook.
Moody's said this was because of an improvement in RHB Bank's asset quality, underpinned by stable funding profile and sustained high Tier 1 ratio. The outlook on all ratings is stable.
Moody's vice president and senior analyst Ng Wee Siang said RHB Bank's BFSR/BCA of D+/ba1 was due the gradual improvement across the bank's key fundamental credit factors over the last three years, particularly its asset quality, and which positions it well amongst other ba1-rated banks.
"The stabilisation of RHB Bank's new impaired loan formation ratio over the past three years and aggressive bad debt write-offs have been driving the improvement in the bank's asset quality," Ng said.
As at end-March 2013, the bank's gross impaired loan ratio was 2.8%, down from 3.6% at end-2011 and 4.6% at end-2010.
Its impaired loan coverage ratio also improved to 73.1% at end-March 2013, from 68.1% at end-2011.
The bank's asset quality should stay strong over the next 18 months, given the favorable shift in its loan mix in recent years and an expectation of a sustained low interest rate environment.
RHB Bank reduced its exposure to the more vulnerable small and medium-sized enterprises to 11% at end-2012, from 16% in 2009, while increasing its exposure to the safer government-related bodies to 10% at end-2012, from 5% in 2009.
The bank's BCA was raised from its previous level, reflecting Moody's expectation that RHB Bank would continue to maintain a high Tier 1 ratio at above 10% (10.7% at end-March 2013), while keeping its funding profile stable.
Moody's pointed out it would consider raising the RHB Bank's BCA if there was a sustained increase in profitability through improvements in its asset quality and operating efficiency.
The specific ratios that Moody's would look for include a further reduction in impaired loans to below 2% of gross loans (2.78% at end-March 2013), and a net income/risk-weighted asset ratio at above 2.1% (1.85% at end-2012).
Moody's would consider lowering the BCA if the bank experiences a sharp slippage in its credit quality, which pushes up its impaired loan ratio to 4.0%, and if its loan loss coverage falls below 60%.