[RAM] RAM Ratings affirms SMBC Malaysia's AA1/Stable/P1 ratings

RAM Ratings has affirmed Sumitomo Mitsui Banking Corporation Malaysia Berhad’s (SMBC Malaysia or the Bank) AA1/Stable/P1 financial institution ratings.

SMBC Malaysia’s ratings considers the Bank’s robust capitalisation and superior asset quality although its small presence, high borrower and depositor concentration, and soft profitability vis-à-vis peers continue to moderate its ratings. The ratings also reflect our view that parental support will be forthcoming given its strategic importance to and close relationship with its parent, Sumitomo Mitsui Banking Corporation (SMBC), which is part of the larger Sumitomo Mitsui Financial Group, Inc. (SMFG or the Group). SMBC’s support has been consistently demonstrated in the past through capital injections and the provision of sizeable funding for business growth, in line with SMFG’s Asia-centric growth agenda. A mega-banking group in Japan, SMFG is one of the largest financial institutions globally.

As SMBC Malaysia’s lending strategy focuses on locally incorporated subsidiaries of established Japanese multinational companies and highly rated domestic corporates, the Bank’s gross impaired loan (GIL) ratio was low at 0.4% as at end-September 2023. In addition to a low-risk appetite, the Bank’s loan provisioning is conservative. Its GIL coverage ratio (including regulatory reserves) stood at a strong 442% on the same date. Charting moderate loan growth of 5% in FY March 2023, SMBC Malaysia expects a similar trend this year considering the softer economic climate.

Pre-tax profit improved to RM272.6 mil in FY Mar 2023 (FY Mar 2022: RM244.0 mil), resulting in a higher return on risk-weighted assets (RoRWA) of 1.8% (FY Mar 2022: 1.7%). The better performance was due to a wider net interest margin driven by rate hikes during the period as well as stronger trading income. This trend continued into 1H FY Mar 2024, leading to an annualised RoRWA of 2.6%. The planned release of some management overlays could provide upside to SMBC Malaysia’s earnings in FY Mar 2024.

As at end-September 2023, the Bank’s common equity tier-1 capital ratio remained strong at 23.0%, affording an ample buffer against any credit deterioration as well as considerable room for business expansion. 


Analytical contacts
Lee Jo Yee
(603) 3385 2583
joyee@ram.com.my

Sophia Lee
(603) 3385 2619
sophia@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.