KUALA LUMPUR:'' Fitch Ratings said it believed the shareholding restriction on local commercial banks might be relaxed over the long-term given the government's aim to liberalise the banking sector.
Foreign shareholdings in a local commercial bank are subject to a 30% cap and Bank Negara Malaysia's approval.
In its rating outlook report of Malaysian banks, Fitch said on Thursday, April 7 it was mostly stable, underpinned by favourable economic prospects and modest inflation risks in 2011.
It said the banks' sound balance sheets and earnings would provide a buffer against a possible renewed global economic slowdown, particularly amid weaknesses in many western economies and the ongoing unrest in the Middle East.
'Fitch further highlights that the ratings of the major local banks are rather high relative to many banks in emerging markets, reflecting the reasonably strong banking sector and a stable operating environment. They showed resilience during the recession in 2008/2009, with only a slight decline in their profitability and no capital impairment,' it said.
Fitch said the three largest Malaysian banks by assets - MALAYAN BANKING BHD [] (Maybank, 'A-'/Stable), PUBLIC BANK BHD [] and CIMB Bank Bhd (CIMB, 'BBB+'/Positive) - have individual ratings of 'B/C', as the banks' standalone financial positions are underpinned by their dominant domestic franchise and sound credit profiles.
The ratings agency said however, rating upside, particularly on the individual rating, was limited in the near term, as it is rare for banks in emerging markets to have an individual rating around 'B', due to their more challenging operating environments than developed markets, such as higher volatility and developing institutional frameworks.
The other four rated local banks - Hong Leong Bank Berhad (HLBB, 'BBB+'/Stable), RHB Bank ('BBB'/Stable), AmBank (M) Berhad ('BBB'/Stable) and EON Bank (EON, 'BBB-'/Rating Watch Positive) have Individual Ratings of 'C' and/or 'C/D'.
'Some upside to their ratings could be driven by consolidation, especially if it were to significantly boost their scale and franchise, provided there is adequate quality capital. EON's ratings are currently on Rating Watch Positive, as its risk profile will strengthen should the proposed takeover by higher-rated HLBB take place,' it said.
Among the local banks, Maybank and CIMB have the largest overseas presence. Others have followed suit, albeit on a much smaller scale, and Fitch expects this trend to continue given the high level of saturation of and competition in the domestic banking system.
The Malaysian banks have shown interest mostly in Indonesia and Thailand due to favourable growth prospects and their geographical proximity. They have so far taken a prudent approach and maintained sound capital buffer to mitigate the challenges often found in such less-developed countries.
Foreign shareholdings in a local commercial bank are subject to a 30% cap and Bank Negara Malaysia's approval.
As this may have impeded operational and financial integration between the local banks and their respective foreign shareholders, Fitch has not factored in institutional support in the banks' Support Ratings, which could otherwise have led to higher Long-Term Issuer Default Ratings for some of them.
Fitch believed that the shareholding restriction may be relaxed over the long-term given the government's aim to liberalise the banking sector.
Foreign shareholdings in a local commercial bank are subject to a 30% cap and Bank Negara Malaysia's approval.
In its rating outlook report of Malaysian banks, Fitch said on Thursday, April 7 it was mostly stable, underpinned by favourable economic prospects and modest inflation risks in 2011.
It said the banks' sound balance sheets and earnings would provide a buffer against a possible renewed global economic slowdown, particularly amid weaknesses in many western economies and the ongoing unrest in the Middle East.
'Fitch further highlights that the ratings of the major local banks are rather high relative to many banks in emerging markets, reflecting the reasonably strong banking sector and a stable operating environment. They showed resilience during the recession in 2008/2009, with only a slight decline in their profitability and no capital impairment,' it said.
Fitch said the three largest Malaysian banks by assets - MALAYAN BANKING BHD [] (Maybank, 'A-'/Stable), PUBLIC BANK BHD [] and CIMB Bank Bhd (CIMB, 'BBB+'/Positive) - have individual ratings of 'B/C', as the banks' standalone financial positions are underpinned by their dominant domestic franchise and sound credit profiles.
The ratings agency said however, rating upside, particularly on the individual rating, was limited in the near term, as it is rare for banks in emerging markets to have an individual rating around 'B', due to their more challenging operating environments than developed markets, such as higher volatility and developing institutional frameworks.
The other four rated local banks - Hong Leong Bank Berhad (HLBB, 'BBB+'/Stable), RHB Bank ('BBB'/Stable), AmBank (M) Berhad ('BBB'/Stable) and EON Bank (EON, 'BBB-'/Rating Watch Positive) have Individual Ratings of 'C' and/or 'C/D'.
'Some upside to their ratings could be driven by consolidation, especially if it were to significantly boost their scale and franchise, provided there is adequate quality capital. EON's ratings are currently on Rating Watch Positive, as its risk profile will strengthen should the proposed takeover by higher-rated HLBB take place,' it said.
Among the local banks, Maybank and CIMB have the largest overseas presence. Others have followed suit, albeit on a much smaller scale, and Fitch expects this trend to continue given the high level of saturation of and competition in the domestic banking system.
The Malaysian banks have shown interest mostly in Indonesia and Thailand due to favourable growth prospects and their geographical proximity. They have so far taken a prudent approach and maintained sound capital buffer to mitigate the challenges often found in such less-developed countries.
Foreign shareholdings in a local commercial bank are subject to a 30% cap and Bank Negara Malaysia's approval.
As this may have impeded operational and financial integration between the local banks and their respective foreign shareholders, Fitch has not factored in institutional support in the banks' Support Ratings, which could otherwise have led to higher Long-Term Issuer Default Ratings for some of them.
Fitch believed that the shareholding restriction may be relaxed over the long-term given the government's aim to liberalise the banking sector.
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