KUALA LUMPUR: Moody’s Investors Service has affirmed Maybank Singapore Ltd’s (MSL) A1 long-term (LT) foreign currency (FC) and local currency (LC) deposit ratings.

The rating agency has also affirmed the bank’s a3 baseline credit assessment (BCA) and adjusted BCA with the rating outlook remaining stable.

“The affirmation of MSL’s A1 deposit ratings and a3 BCA reflects the bank’s strong asset quality, track record of prudent capital and liquidity management, as well as its modest profitability,” it said in a statement today.

In addition, the agency has affirmed MSL’s Aa3 LT FC and LC counterparty risk ratings (CRRs), Aa3(cr) LT counterparty risk (CR) assessment, P-1 FC commercial paper rating, P-1 short-term (ST) FC and LC deposit ratings, P-1 ST FC, and LC CRRs and P-1(cr) ST CR assessment.

Moody’s said that MSL’s problem loan ratio would likely remain low at around 0.5 per cent because of its focus on low-risk housing and auto loans in Singapore.

“These loans constituted more than 60 per cent of MSL’s total gross loans as of March 31, 2023, and are underwritten under the country’s strict consumer debt regulations.

“Furthermore, MSL has built up strong loan-loss reserves, which amounted to more than 250 per cent of the bank’s problem loans as of Dec 31, 2022,” it said.

Moody’s said MSL’s capital and liquidity metrics were expected to remain well above regulatory requirements.

“The bank’s common equity tier 1 capital ratio was high at 14.2 per cent as of March 31, 2023.

“Its average Singapore dollar and all-currency liquidity coverage ratios, which also include Maybank’s Singapore branch, were also high at 165 per cent and 146 per cent respectively in the first quarter of 2023,” it said.

Meanwhile, the rating agency noted that MSL’s return on average assets would remain modest at around 0.5 per cent given the bank’s lack of economies of scale.

It also said that although the bank’s net interest margin expanded in 2022 following higher domestic interest rates, it would likely stabilise at current levels as funding costs catch up.

“MSL’s credit costs will be elevated because of pre-emptive provisioning amid the economic slowdown in Singapore,” it said.

The rating agency said that MSL’s A1 deposit ratings were two notches higher than the bank’s a3 BCA, incorporating Moody’s assumption that the probability of support from the Singaporean government (Aaa stable) would be high in times of need.

“The support assumption reflects the bank’s designation as a domestic systemically important bank by the local regulator.

“Although Moody’s also expects MSL to receive extraordinary support from its parent, Malayan Banking Bhd (Maybank, A3 stable, a3), the bank does not benefit from any rating uplift because its BCA is already at the same level as Maybank’s BCA,” it said.

In terms of an upgrade or downgrade of ratings, Moody’s said MSL’s A1 deposit ratings upgrade would be unlikely as they were already among the highest globally.

MSL’s BCA could be upgraded if the bank’s return on tangible assets increases to above 0.8 per cent without a significant deterioration in its other metrics, it said.

“However, Moody’s is unlikely to upgrade the BCA such that it becomes more than two notches higher than Maybank’s BCA given the strong brand association and solid management, operational and financial linkages between the two entities,” it said.

On another note, Moody’s said it could downgrade MSL’s ratings if Maybank’s ability or willingness to provide support weakened and MSL’s BCA was downgraded.

“MSL’s BCA could be downgraded if the bank’s problem loan ratio rises above two per cent and its tangible common equity/risk-weighted assets fall below 12 per cent,” it added. – Bernam