Published March 25, 2009

FIs shine in M'sian firms' ratings outlook

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIAN companies appear to be holding up in the financial crisis, judging by the stable ratings outlook accorded to four-fifths of 296 outstanding issues rated by RAM Ratings.

Financial institutions (FIs) are the stand-out, with only one per cent accorded a negative outlook by the country's main rating agency in its annual review of the sectors.

Fifteen outstanding issues or 5 per cent were rated positive and 46 or 16 per cent given a negative outlook - meaning there is a possibility of a downward change over the next six to 24 months.

Where shaky domestic FIs threatened the banking system a decade ago during the Asian financial crisis - the loans-deposit ratio then was about 90 per cent, and non-performing loans in the high teens - they are now being held up as one reason of Malaysia being better off amid the current meltdown than other countries, some of which have had to nationalise or near-nationalise their banks.

RAM Ratings has a stable outlook for 90 per cent of FI issues and another 8 per cent are deemed positive.

'Our local banking sector is entering this unprecedented financial turmoil from a position of strength and resilience,' said RAM Ratings' head of FI ratings Promod Dass, who estimates gross non-performing loans could accelerate to 9 per cent in the worst-case scenario, from just over 4 per cent now.

In comparison, 73 per cent of corporate issues are rated stable and 4 per cent positive. Almost a quarter have a negative outlook.

The outlook for corporate credit will be challenging, with collapsing global demand expected to slash revenue and profits.

While many companies learned from the previous crisis - by reducing their leverage and strengthening their balance sheets - the drastic fall in external demand and recessionary conditions in almost half the world's markets pose a different set of problems.

But companies in consumer staples - food and beverage, health care and rubber gloves, for example - are expected to continue to exhibit greater resilience.

RAM Ratings chief executive Lisa Mohd Noor said it is normal for weak macroeconomic conditions to exert pressure on credit ratings, and because changes can happen so quickly under these conditions, the agency intends to increase the number of reviews to outstanding ratings. Last year, it announced 481 rating actions.

The bond market continues to suffer a dearth of issues in the economic slump, said Ms Lisa. The first three months of the year were 'almost dead' despite an existing RM55 billion to RM60 billion (S$23 billion to S$25 billion) of rated bonds in the pipeline.

Until the current pricing gap between investors and issuers is narrowed, these issues are not expected to reach the market.

Between RM20 billion and RM25 billion of corporate debt is expected to be raised this year, compared with last year's estimated RM28 billion.

Industry players are hoping the proposed establishment of a Financial Guarantee Institution to provide credit enhancement for companies to raise funds from the bond market will help lower-rated issues gain access to funds.

Investors' low risk appetite and insistence on a minimum double A if not triple A issues has made the going tough for triple B or single A-rated issues.