RETAIL BANKING | Cesar Tordesillas, Malaysia

Recession threatens Malaysian bank's ratings

Moody's warns that credit stress among Malaysian banks could increase if unemployment rises and recession sets in for a protracted period. But since credit stress in the Malaysian banking system has been muted, Moody's noted that its review deposit and debt ratings of nine Malaysian banks is unlikely to lead to more than one notch change.Moody's will review the specific circumstances of Malaysia to determine the appropriate systemic support for Malaysian bank ratings and the implications for the nine banks that have been identified as being potentially affected.Factors that Moody's will consider in its assessment of systemic support include the size of the banking system in relation to government resources, the level of stress in the banking system, the foreign currency obligations of the banking systems relative to the government's own foreign exchange resources, and changes to the government's political patterns and priorities.According to Moody's the Malaysian government has implemented a number of pre-emptive measures to ensure the stability of the Malaysian banking system during the global crisis. This includes the provision of a blanket guarantee until December 2010 to all local and foreign currency deposits with all domestic and locally incorporated foreign banking institutions.Furthermore, Moody's also finds the government to be proactive in supporting the banking system in the current economic downturn by introducing several guarantee schemes to share the credit risk of banks when they extend loans to selective sectors and small- and medium-sized enterprises.The banks whose deposit and debt ratings were placed by Moody's on review for possible downgrade are AmBank (M) Berhad, CIMB Bank Berhad, CIMB Investment Bank Berhad, EON Bank Berhad, Hong Leong Bank Berhad, HSBC Bank Malaysia Berhad, Malayan Banking Berhad, Public Bank Berhad, and RHB Bank Berhad."The review of their debt and deposit ratings will look at the extent to which Malaysia's ability to provide support to its banking system, if needed, is converging with the government's own debt capacity as a result of the ongoing global economic and credit crisis," says Christine Kuo, a Moody's Vice President and Senior Analyst.At present the deposit and debt ratings of the nine banks on review receive between one to five notches of systemic support.

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