Published date: March 27, 2019
MARC today published its 2018 Annual Corporate Default and Rating Transitions Study. The report tracks the history of corporate ratings assigned by the rating agency from its inception in 1996 through to December 31, 2018. The results of this latest study show improving rating accuracy and stability.
Given that most issuers in MARC’s rating universe are concentrated in the investment grade category, no issuers defaulted in 2018 even as the business environment became more challenging. As a result, the long-term annual corporate default rate fell marginally to 2.0% from 2.1% in the preceding period. Across sectors, the industrial products sector has the highest long-term weighted average default rate of 6.9%.
MARC’s rating performance continues to improve. Its long-term average rating stability rate over the period of 1998-2018 increased to 86.3% from 85.6% in 2017, the highest in 18 years. In addition, MARC’s one-year rating accuracy ratio edged up to 68.6% from 68.3% in the preceding period. The absence of severe negative rating actions or rating cliffs reflects MARC’s timely rating actions.
MARC recorded only one downgrade among its issuers in 2018. As a result, the downgrade rate decreased slightly to 1.4% in 2018 from 1.5% in 2017. Despite the absence of upgrades, the downgrade rate has been on a declining trend since 2016.
MARC foresees more challenges for Malaysian non-financial corporates in 2019 due to weaker economic prospects on both the domestic and external fronts. MARC expects gross domestic product growth in 2019 to moderate to 4.6% on the back of softer growth in private consumption and investment. However, private consumption is expected to remain as the main domestic economic pillar given the relatively stable labour market.
The overall weaker performances of Malaysian corporates will likely exert pressure on the rating trajectories of MARC-rated non-financial corporates. In particular, MARC expects corporates in the property, construction and palm oil sectors to be more vulnerable to headwinds. On balance, however, there is generally enough headroom within the rating bands to allow performance stress to be absorbed without necessitating severe rating changes.
For a full copy of this report, please click here.
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