[RAM] RAM Ratings affirms SMBC Malaysia's AA1/Stable/P1 ratings

RAM Ratings has affirmed Sumitomo Mitsui Banking Corporation Malaysia Berhad’s (SMBC Malaysia or the Bank) AA₁/Stable/P1 financial institution ratings. 

The ratings incorporate our assessment of a “high likelihood” of support from SMBC Malaysia’s ultimate parent, Sumitomo Mitsui Financial Group, Inc. (SMFG or the Group), as the Bank plays a strategic role in the Group’s Asia-centric strategy. Wholly owned by Sumitomo Mitsui Banking Corporation, the Bank is part of the larger SMFG, a mega-banking group in Japan and one of the largest financial institutions globally. The ratings also consider SMBC Malaysia’s robust capitalisation and excellent asset quality, even as high borrower and depositor concentration, soft profitability relative to peers, and the Bank’s comparably small franchise continue to weigh on its credit profile.

In view of its focus on lending to subsidiaries of Japanese conglomerates, multinational companies and top-tier domestic corporates with strong credit profiles, SMBC Malaysia boasts superior asset quality. With just one impaired borrower account, the Bank’s gross impaired loan ratio remained low at 0.4% as at end-September 2024 (end-March 2023: 0.3%). Loan loss coverage (excluding regulatory reserves) was a still-sound 148%. With a common equity tier-1 capital ratio of 25.6% on the same date (end-March 2023: 23.4%), SMBC Malaysia is well-capitalised for its low-risk profile. 

The reversal of loan provisions last year, together with stronger treasury-related income, supported an improvement in the Bank’s bottom line to RM361 mil in FY Mar 2024 (+33% y-o-y; FY Mar 2023: RM273 mil). Pre-tax profit subsequently came in lower at RM206 mil in 1H fiscal 2025 (-4% y-o-y; 1H fiscal 2024: RM213 mil) following a smaller writeback in credit costs and higher expenditure, to a smaller extent, despite a healthier top line after the net interest margin (NIM) recovered to 1.1% (fiscal 2024: 1.0%). 

SMBC Malaysia’s margins and return on risk-weighted assets are weaker than peers’, with three-year averages of 1.1% and 1.9%, respectively (peer averages: 1.6% and 3.2%). The Bank’s rather muted loan growth projection (around +1% y-o-y) may see flattish interest income this year, with NIM stabilising around the steady state level of 1.0%-1.1%.


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Sophia Lee
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