KUALA LUMPUR: Moody’s Investors Service says Malaysia’s large banks has consolidated as expected, Mitsubishi UFJ Financial Group Inc’s (MUFG) stake in CIMB Group Holdings Bhd would have been a more worthwhile investment.
But large bank mergers had yet to take place, and it was not clear if they would in the foreseeable future, said the rating agency in a report today.
Moody’s said although MUFG’s ratio of tangible common equity (TCE) to risk-weighted assets (RWAs) was 9.69 per cent on a Basel III transitional phase-in basis at March 31, it expected the bank would raise this ratio to around 10 per cent.
“We expect that this transaction will allow MUFG to both reduce its RWAs and increase its TCE, and forecast that MUFG’s TCE/RWA ratio will improve by one to seven basis points on a pro forma basis, depending on the investment’s book value,” it said.
Moody’s said before the sale, Japan’s largest banking group, The Bank of Tokyo-Mitsubishi UFJ Ltd (BTMU) was CIMB’s fourth-largest shareholder.
“However, as a minority shareholder, BTMU was unable to exercise influence on management decisions, which made its stake in CIMB, Malaysia’s second-largest banking group by assets, a drag on MUFG’s capital ratios without much benefit,” it said.
Moody’s said MUFG had a standalone subsidiary in Malaysia that had generated solid returns for the group.
Also, it said MUFG would maintain its relationship with CIMB as an alliance partner, positioning MUFG as the most prominent Japanese bank that could offer Islamic finance.
“These attributes make more strategic sense for MUFG than keeping the CIMB stake,” it said.
Moody’s said MUFG would likely remain committed to expansion in the nations that made up Asean.
The main vehicle for MUFG’s Asean expansion is Bank of Ayudhya in Thailand.
Moody’s said with a stake of about 77 per cent, MUFG could exert management control and significant influence on Bank of Ayudhya.
Also, it said MUFG could use Bank of Ayudhya to expand into other Asean countries.
The Philippines is another key market for MUFG, which has a 20 per cent stake in Security Bank Corporation, a leading commercial bank there.
Last Wednesday, BTMU, a subsidiary MUFG, announced that it had sold its 4.6 per cent stake in CIMB for about 68 billion yen.
Moody’s said the sale was credit positive for MUFG because it freed up capital, and was in line with MUFG’s strategy to improve its capital efficiency.