Outlook On Four Malaysian Banks Revised To Negative On Rising Economic Risk; Ratings Affirmed

Primary Credit Analyst: Ivan Tan, Singapore (65) 6239-6335; ivan.tan@standardandpoors.com Secondary Contact: Deepali V Seth, Mumbai (91) 22-3342-4186; deepali.seth@standardandpoors.com

In our view, rising housing prices and elevated household debt levels are contributing to growing economic imbalances in Malaysia. This poses a risk for Malaysian banks, given their significant exposure to the household sector and the importance of consumer credit loan quality on their financial profile. We are revising our rating outlook on four Malaysian financial institutions to negative from stable. The negative outlook reflects the possibility that we may lower the ratings on these financial institutions if the growing economic imbalances lead us to a more negative view of the environment in which Malaysian banks operate.

SINGAPORE (Standard & Poor's) Nov. 27, 2013--Standard & Poor's Ratings Services today revised its rating outlook on four Malaysian financial institutions to negative from stable. The financial institutions are: CIMB Group Holding Bhd. AmBank (M) Bhd. RHB Bank Bhd. RHB Investment Bank Bhd.

At the same time, we lowered our long-term ASEAN regional scale rating on CIMB Group Holding Bhd. to 'axBBB+' from 'axA-' and affirmed the 'axA-2' short-term rating. We also affirmed the global scale ratings on all four financial

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Outlook On Four Malaysian Banks Revised To Negative On Rising Economic Risk; Ratings Affirmed

institutions. Ratings List Ratings Affirmed/CreditWatch/Outlook Action To CIMB Group Holding Bhd. Issuer credit rating ASEAN regional scale AmBank (M) Bhd. Issuer credit rating ASEAN regional scale RHB Bank Bhd. Issuer credit rating ASEAN regional scale RHB Investment Bank Bhd. Issuer credit rating ASEAN regional scale BBB-/Negative/A-3 axBBB+/axA-2 BBB-/Stable/A-3 axA-/axA-2 From

BBB+/Negative/A-2 axA+/axA-1

BBB+/Stable/A-2 axA+/axA-1

BBB+/Negative/A-2 axA+/axA-1

BBB+/Stable/A-2 axA+/axA-1

BBB+/Negative/A-2 axA+/axA-1

BBB+/Stable/A-2 axA+/axA-1

We revised the outlook on the four banks because of our view of rising economic risk for banks operating in Malaysia, given the prolonged run-up in housing prices and household debt in Malaysia. The negative outlook recognizes the potential for deterioration in the banks' asset quality and financial profile, if the consumer debt burden proves excessive in an unfavorable economic scenario. Successive government efforts since 2010 to counteract the stimulatory effect of low interest rates on consumer borrowing and home prices have not been as effective as we had expected. The Malaysian government has announced more stringent measures in its recent 2014 budget to curb property speculation, and we expect the new measures to rein in prices moderately. These systemic factors are incorporated in Standard & Poor's rating methodology primarily through its Banking Industry Country Risk Assessment, or BICRA. The BICRA framework takes into account economic and institutional risk factors present in the environment in which banks operate. Malaysia's BICRA is currently set at '4' on a 1 (lowest risk) to 10 (highest risk) scale. The BICRA component of the analysis is intended to highlight emergent systemic risks that may not be fully apparent when viewing the sector at the level of individual banks. In assessing Malaysia's potential exposure to economic imbalances associated with household debt and the property market, Standard & Poor's will look for consistent indications that housing price escalation and consumer debt are moderating. In particular, Standard & Poor's will continue to consider the

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Outlook On Four Malaysian Banks Revised To Negative On Rising Economic Risk; Ratings Affirmed

impact of recent government and regulatory policy initiatives to curtail potential systemic risk arising from the household sector. If the rise in housing prices in Malaysia slows substantially, we may revise the negative economic trend on the BICRA and the negative outlooks on the four Malaysian institutions back to stable. If the stress from housing prices and consumer leverage continues and economic imbalances grow, we may shift the BICRA on Malaysia to '5' from '4'. This will result in a corresponding shift in the anchor stand-alone credit profile (SACP) of Malaysian banks to 'bbb-' from 'bbb' and will lead to negative rating actions in the absence of offsetting considerations. The anchor is our starting point in assigning ratings. This may also affect our assessment of risk-adjusted capital (RAC) for banks, as we calibrate to the higher underlying economic risk in the country. All five commercial banks operating in Malaysia currently have adequate capital and earnings. However, RHB Bank and Public Bank Bhd. have relatively lower RAC than their peers and could be at risk. We may downgrade RHB Bank by up to two notches if we revise the BICRA on Malaysia to '5' from '4' because of deterioration in our economic risk assessment. This would result in the downward revision of the anchor SACP on RHB Bank, and Standard & Poor's assessment of RAC would decline below 7%. We may also downgrade RHB Bank if we lower the sovereign credit rating on Malaysia. Under our group methodology, the issuer credit rating on RHB Investment Bank is linked to the rating on RHB Bank as a core entity of the RHB Group; that means it would be subjected to changes in line with the rating on RHB Bank. We may downgrade AmBank by one notch if: (1) we lower the bank's SACP when we revise the BICRA on Malaysia to '5' from '4' because of a deterioration in our economic risk assessment; or (2) we lower the sovereign credit rating on Malaysia. We may downgrade CIMB Group Holding Bhd. if the SACP of its main operating subsidiary, CIMB Bank Bhd., declines by a notch. We may lower CIMB Bank's SACP if: (1) we revise the BICRA on Malaysia to '5' from '4' because of a deterioration in our economic risk assessment; or (2) we believe CIMB Bank's RAC ratio is likely to decline below 5% because of aggressive expansion, particularly in higher-risk emerging markets. We affirmed the ratings and kept a stable outlook on four other Malaysian institutions. We list them below, along with the reasons for the affirmations: Malayan Banking Bhd. (A-/Stable/A-2; axAA/axA-1), Public Bank Bhd. (A-/Stable/A-2; axAA/axA-1), CIMB Bank Bhd. (A-/Stable/A-2; axAA/axA-1). The three banks have the potential for receiving exceptional government support, in our view. The notching applied to these ratings stemming from the potential support is configured such that the ratings would not be lowered, all else being equal, should the respective stand-alone credit profiles be lowered by one notch.

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Outlook On Four Malaysian Banks Revised To Negative On Rising Economic Risk; Ratings Affirmed

CIMB Investment Bank Bhd. (A-/Stable/A-2; axAA/axA-1). Under our group methodology (see "Group Rating Methodology," published May 7, 2013), the issuer credit rating on CIMB Investment Bank is linked to the rating on CIMB Bank as a core entity of CIMB Group, such that it would not be lowered, should its stand-alone credit profiles be lowered by one notch, all else being equal. RELATED CRITERIA AND RESEARCH Related Criteria Group Rating Methodology, May 7, 2013 Banks: Rating Methodology And Assumptions, Nov. 9, 2011 Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Bank Capital Methodology And Assumptions, Dec. 6, 2010 Related Research Rising Household Debt Could Weigh Down Asia's Banks, Oct. 28, 2013

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

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