Fitch downgrades Exim Bank, affirms Maybank’s BBB+ rating

by NUR HANANI AZMAN / pic by TMR

THE Export-Import Bank of Malaysia Bhd (Exim Bank) is the latest state-owned firm to see a credit-rating cut following Malaysia’s sovereign downgrade on Dec 4.

Fitch Ratings Inc yesterday downgraded Exim Bank’s long-term issuer default rating (IDR) to BBB+ from A- with a stable outlook on high expectation of extraordinary state support for the bank given its longstanding policy mandate.

Exim Bank is a wholly-owned subsidiary of the Minister of Finance Inc.

Fitch also downgraded the bank’s support rating (SR) and revised its support rating floor (SRF) down to BBB+ from A- in line with the government’s reduced ability to provide support due to its widening fiscal deficit and debt metrics.

“The bank’s mandate has become more important amid the sharp contraction in trade flow during the coronavirus pandemic. Exim Bank has actively engaged its borrowers who need repayment assistance, similar to other commercial banks.

“Its inclination to provide such relief is heightened by its policy mandate, in spite of more challenging credit conditions,” the credit rating agency stated.

Fitch also downgraded Exim Bank’s senior debt and medium-term note programme to BBB+ from A-, similar to the bank’s IDR.

Fitch said the senior notes are rated at the same level as its IDR as they constitute direct, senior and unsecured obligations and rank equally with all of Exim Bank’s other unsecured and unsubordinated obligations.

The long-term rating on Exim Bank’s sukuk programme — issued through its wholly-owned special-purpose vehicle, Exim Sukuk Malaysia Bhd — was also downgraded.

The move follows similar credit rating cuts made on Petroliam Nasional Bhd and Telekom Malaysia Bhd last week after Fitch downgraded Malaysia’s sovereign credit rating to BBB+ from A- for the first time since the 1997/98 Asian financial crisis.

Separately, Fitch affirmed Malayan Banking Bhd’s (Maybank) long-term foreign- and local currency IDRs at BBB+ with a stable outlook.

The bank’s viability rating (VR), senior debt ratings and medium-term note programme are also rated BBB+.

“Maybank’s IDRs are now at the same level as the sovereign, and they are very unlikely to be upgraded unless the sovereign rating, as well as the operating environment score, is upgraded. We consider this to be unlikely in the near term,” it stated.

Maybank’s VR and IDR may come under even more pressure if the economic environment deteriorates beyond Fitch’s base case, leading to more severe credit losses that could worsen the bank’s asset quality, profitability and capitalisation scores.

Fitch also downgraded Maybank’s funding and liquidity factor midpoint to BBB+ from A- with a stable outlook, as the sovereign rating downgrade constrains its assessment of the factor.

“We are unlikely to view Maybank’s foreign-currency liabilities more favourably than those of the sovereign, thereby constraining the funding and liquidity score at BBB+. In the absence of the sovereign rating downgrade, there were no material developments about the bank’s funding or liquidity, and Maybank’s deposit franchise remains the strongest among domestic peers,” it added.

Meanwhile, Maybank’s SR and SRF have been affirmed at 2 and BBB respectively, reflecting Fitch’s high expectation of state support for the bank.

“This assessment has not been affected by the sovereign rating downgrade, as we believe that the state continues to have a high propensity to provide support to the bank as one of two domestic systemically important banks in the top-occupied bucket.

“The size of any potential support remains manageable, especially in consideration of the resources available to the government-linked investment companies that are collectively the bank’s majority shareholders,” it said.

However, Fitch noted that a decline in the state’s ability or propensity to provide extraordinary support to Maybank could affect the bank’s SR and SRF.

This could arise from a downgrade in the sovereign’s ratings and financial strength, Fitch’s perception of Maybank’s systemic significance, the bank’s links to the state, or the introduction of senior debt bail-in requirements.