THE STAR – RAM Rating Services Bhd (RAM Ratings) sees no rating impact on Malaysian banks from the failure of the United States Silicon Valley Bank (SVB) and two other smaller banks last week.
The rating agency said that in Malaysia, banks’ credit fundamentals remained robust and resilient supported by strong regulatory supervision to weather heightened volatility in global financial markets. “Compared to SVB, we see fundamental differences in the business and balance sheet profiles of commercial banks in Malaysia.”
“Domestic commercial banks typically engage in more lending activities as opposed to relying on bond investments which are exposed to market volatility.”
“The proportion of domestic banking system assets invested in bond securities is less than 25 per cent,” it said in a statement today.
SVB, on the other hand, had more than 50 per cent of its asset base in such securities, which led to huge unrealised losses amid rapid and steep interest rate hikes in the US.
Moreover, less than 40 per cent (on average) of bond holdings in Malaysia’s eight major banks are classified as held to maturity (HTM), while the rest are marked to market.
This means that fair value losses on bond securities are already largely reflected in the banks’ capital position.”
“In contrast, SVB classified almost 80 per cent of bond securities as HTM (only a little over 20 per cent were marked to market), indicating that unrealised losses had not yet been reflected in its equity.”
“HTM bonds are carried at amortised cost in the balance sheet given the intention to hold these securities to maturity, so fair valuation losses are not captured in the capital,” it said.
