OMINOUS TURN: Najib's brother's bank downgraded to 'NEGATIVE' amid asset bubble fears

SHARES in RHB Capital fell 1.8 per cent to RM7.71 while CIMB shares fell 0.4 per cent to RM7.60 after international rating agency Standard & Poor's revised its rating outlook on the banks to "negative" from "stable".

S&P had a day ago revised its rating outlook on four banks, namely CIMB Group Holdings Bhd, AmBank (M) Bhd, RHB Bank Bhd and RHB Investment Bank Bhd (RHBIB) to "negative" from "stable", on rising economic risk due to a prolonged run-up in housing prices and household debt in the country.

S&P also lowered its long-term Asean regional scale rating on CIMB Group to 'axBBB+' from 'axA-' and affirmed its 'axA-2' short-term rating.

Of the four that ended up on the S&P 'hit list', CIMB Group is the largest with the capability to rock Malaysia's financial system in the event of any default or crises.

It is umbrella holding company for the sprawling banking group headed by Nazir Razak, the youngest brother of Prime Minister Najib Razak who is also the country's finance minister.

CIMB is also the fifth largest banking group by assets in Southeast Asia and at the end of June 2013 had over 40,000 staff and approximately 13 million customers.

Others were spared but for how long?

The ratings action was taken even as S&P reaffirmed the ratings and kept the stable outlook on four other banks, namely Malayan Banking Bhd, Public Bank Bhd, CIMB Bank Bhd and CIMB Investment Bank Bhd for their potential for receiving exceptional government support.

S&P said the negative outlook on CIMB Group, RHB Bank, AMBank and RHBIB recognises the potential for deterioration in the banks' asset quality and financial profile, if the consumer debt burden proves excessive in an unfavorable economic scenario.

The ratings agency opined that 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 expected. It however expects more stringent measures in its recent Budget 2014 to curb property speculation to rein in prices moderately.

In assessing Malaysia's potential exposure to economic imbalances associated with household debt and the property market, S&P looks for consistent indications that housing price escalation and consumer debt are moderating. In particular, S&P will continue to consider the impact of recent government and regulatory policy initiatives to curtail potential systemic risk arising from the household sector.

It said if the rise in housing prices in Malaysia slows substantially, the negative outlooks on the four Malaysian institutions may be revised back to stable.

Too little too late

Meanwhile, according to the Sundaily, Alliance Research banking analyst Cheah King Yoong said in a note to clients that he maintains his "overweight" call on the banking sector at this juncture.

"We will review our recommendation on the sector post the third-quarter 2013 reporting season, where we could get further clarity from management of banking groups under our coverage with regards to the impact of such policies on the banks' growth prospects," he said.

He reiterated that the latest policies implemented by Bank Negara Malaysia (BNM) on Nov 15, 2013 under its new circular 'Measures to Promote Sustainability of the Property Market' illustrated the sheer determination of the authorities to contain the growth of household debt.

"These measures, together with potential rate hikes by BNM in 2014, fiscal tightening by the federal government and subsidy rationalisation programme next year, could further drag loan growth momentum in the retail segments, temporarily lead to rising credit cost, and dampen investor sentiments on the banking sector," Cheah said.

Others were less optimistic, predicting that the Malaysian financial authorities had been too lax and playing to the gallery ahead of the May 5 general elections. Many have opined the current steps taken to rein a probable asset bubble plus record national as well as household debt as being "too late and too little". - Malaysia Chronicle