- Bloomberg reported that Standard and Poor’s (S&P) has revised the credit outlook on four Malaysian banks to Negative from Stable. The four banks are CIMB Group Holdings Bhd (CIMB), AmBank (M) Bhd, RHB Bank Bhd and RHB Investment Bank Bhd. S&P said the negative outlook is due to concerns on rising home prices and household debt, which may contribute to economic imbalances in the country. However S&P affirmed ratings on the banks with no changes, except for CIMB. S&P has lowered CIMB’s long-term Asean regional scale rating on CIMB to axBBB+ from axA-.

- The immediate impact may be on funding costs. Based on industry checks, the banks hinted the change in outlook does not affect the funding costs, as these are more reliant on ratings. For CIMB, the change in ASEAN scale rating may affect funding costs, if these are raised in foreign currency, but we understand there are no plans to do so. In addition, the company’s rating is changed only at the holding company level, which thus does not affect its overseas subsidiary’s ratings.

- Nevertheless, we note that funding costs for debt instruments have been rising in the past one year. For example, on 15 November 2013, PBB issued the third tranche of sub-notes amounting to RM500mil at a coupon rate of 4.73%. This is under its Basel III-Compliant Tier 2 Subordinated Medium Term Notes Programme of up to RM10.0bil. RAM Rating Services Bhd had assigned AA1 rating to the Sub-Notes Programme. The first tranche of RM1bil was issued at a coupon rate of 4.80% in September 2013 and the second tranche of RM450mil was issued at coupon rate of 4.77% in October 2013.

- As a comparison, two years ago in August 2011, PBB issued its fifth tranche of sub-debt at a coupon rate of 4.28%. This was part of its Subordinated Medium Term Note Programme of up to RM5.0bil Nominal Value of Subordinated Notes.

- In November 2012, CIMB Bank Bhd (subsidiary of CIMB) issued a RM1.5bil Tier 2 Subordinated Debt at a coupon rate of 4.15%. The Sub Debt is rated AA+ by Malaysian Rating Corporation Bhd. This was part of CIMB’s RM1,500mil Tier 2 Subordinated Debt pursuant to a Tier 2 Subordinated Debts (RM) Programme, together with a Tier 2 Subordinated Debts (Foreign Currency) Programme.

- In December 2012, RHB Cap’s wholly-owned subsidiary, RHB Investment Bank Bhd (RHB Investment), issued RM245mil subordinated notes at a fixed coupon of 4.4% per annum. The subordinated note were rated AA3 by RAM Rating Services Bhd.

- Based on the latest news, our checks imply a neutral impact on funding costs as there is no change in rating - except for CIMB. Nevertheless, this would probably dampen sentiments further, while the latest industry trend provides evidence of higher funding costs ahead - irrespective of this latest news. We reiterate our belief that there is likelihood of less ample domestic liquidity ahead, given the rising loan-to-deposit ratio. 

Source: AmeSecurities