MARC Ratings has revised its rating methodologies on financial institutions (FIs) as well as debt issuances qualifying for Basel III capital treatment issued by FIs and their financial holding companies. The methodology revisions do not represent fundamental shifts in MARC Ratings’ approaches but are intended to better align with recent trends in the financial services industry in line with the rating agency’s continuous emphasis on a forward-looking perspective.
In respect of FI ratings, there has been modest calibration in the weights assigned to quantitative and qualitative rating factors. Specifically, the funding and liquidity factor was allocated a 25% weightage, up from 20% previously. The 5% increase was reallocated from the weightage given to qualitative factors. This recalibration has not resulted in any change in the FI ratings in MARC Ratings’ rated universe.
Regarding the ratings on Basel III instruments, namely Additional Tier 1 (AT1) and Tier 2 instruments, MARC Ratings has reassessed the relatively higher credit risk arising from the subordinated status of these instruments. The rating agency has narrowed the notching guidelines for both instruments with reference to the FI ratings. However, for AT1 securities, the notching has been expanded to incorporate the capital buffer of the rated FIs against the loss absorbency trigger threshold.
This has not resulted in any changes in the ratings accorded by MARC Ratings to the Basel III instruments in its rated universe, aside from those issued by Bank Muamalat Malaysia Berhad which is rated A+/Stable. The bank’s AT1 Capital Sukuk Wakalah is revised to BBB+IS from BBBIS and its Tier-2 Subordinated Sukuk Wakalah to AIS from A-IS. Both instruments are under Bank Muamalat’s RM5.0 billion Sukuk Wakalah Programme.
The revised methodologies supersede MARC Ratings’ previous rating methodologies for financial institutions and Basel III instruments, and can be accessed on MARC’s corporate website.