Malaysian banking stocks bounce back from ratings downgrade

KUALA LUMPUR (Feb 4): Most local banking stocks rebounded on Monday from last week’s news that Moody’s Investor Services had downgraded its short term deposit and issuer ratings on eight Malaysian banks.

Last Thursday, theedgemalaysia.com attributed the FBM KLCI’s fall in opening trade to the Moody’s report and the subsequent drag caused by the drop in banks’ share prices.

However, Desmond Ch’ng, an analyst from Maybank said in a note today that the short-term credit rating downgrades by Moody’s was a housekeeping measure, with no impact on the banks.

“More importantly, the long-term A3 ratings have been affirmed and are a testimony to the strength of the local banking sector,” he said.

Moody's affirmed the long-term A3 ratings of eight Malaysian banks but downgraded its short-term ratings to Prime-2 (P2) from Prime-1 (P1).

The banks are: CIMB Bank, CIMB Investment Bank, Hong Leong Bank, Maybank, Public Bank, RHB Bank, HSBC Bank Malaysia and Standard Chartered Bank Malaysia.

P1 reflects "superior ability to repay short-term debt obligations" while P2 reflects "strong ability to repay short-term debt obligations". Issuers rated P3, meanwhile, have an acceptable ability to repay short-term obligations.

In afternoon trades, CIMB Group Holdings Bhd was up 9 sen to RM7.30 with 6.39 shares done and Maybank was up 10 sen to RM8.98 with 7.53 million shares done. Both counters were second and third amongst those with top turnover across the exchange.

Hong Leong Bank Bhd’s shares were up 16 sen to RM14.40, while Hong Leong Financial Group was up 8 sen to RM13.84. Public Bank Bhd was up 6 sen to RM15.58.

Maybank IB Research is maintaining its ‘overweight’ rating on the banking sector with its top picks being RHB Capital, Hong Leong Financial Group, Public Bank and Hong Leong Bank.

Alliance Research vice president for equity research Cheah King Yoong also said in a note today that the near term earnings prospects for Malaysian banks remained strong, but loan loss provision could creep up this year, and the existence of high foreign shareholdings could make the sector vulnerable to foreign selling should domestic equity risk premium heighten.

“RHB Cap serves as our top pick of the banking sector since we believe that its current low valuation is no longer justified. For mid cap banking exposure, we like Affin Holdings, a bank that has turnaround story and offers good proxy to the M&A theme but has been persistently overlooked by investors,” he said.

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