Fitch IBCA Ratings - Press Releases -Malaysia's Bank of Commerce On RatingAlert Neg; Bank Bumiputra's Ratings

Fitch

Established in 1913

Malaysia's Bank of Commerce On RatingAlert Neg; Bank Bumiputra's Ratings Affirmed On News Of Merger

Fitch IBCA-London/Singapore-18 September 1998: Fitch IBCA, the international rating agency, has placed the 'C/D' Individual rating of Bank of Commerce on RatingAlert negative on the announcement yesterday that its parent, Commerce Asset Holdings Bhd., would merge with Bank Bumiputra Malaysia Bhd. Bank Bumiputra's Individual rating of 'E' was affirmed by the agency, despite the bank's announcement that it was recapitalised by the Malaysian government. Both banks' Support ratings of '2T' remain unchanged.

On September 4th 1998, Fitch IBCA downgraded the Individual rating of Bank Bumiputra to 'E' in anticipation that the bank would report a sufficiently large loss to require recapitalisation. Bank Bumiputra Group's pre-tax loss of MYR 1.4 bln, announced today, was within the agency's expectations; the government's subsequent recapitalisation of the bank was necessary since its risk-weighted capital adequacy ratio of 6.5% at end-March 1998 was 1.5% below the central bank's minimum requirement. Although MYR 1.1 bln was directly injected by the Malaysian government, raising Bank Bumiputra's risk-weighted capital adequacy ratio to 9.7%, the agency cautioned that its asset quality is still poor and likely to have deteriorated further since March 1998. Fitch IBCA estimates that Bank Bumiputra Group's gross non-performing loans/total loans ratio is currently over 25% and that net non-performing loans are over MYR 5bln or nearly 200% of post-recapitalisation equity. This implies that the bank will in a worst case scenario require a further equity injection of about MYR 2 bln to maintain the current level of capitalisation.

With regard to the announcement that Bank Bumiputra Malaysia and Commerce Asset Holdings are to merge, the agency said that this development could be negative for Bank of Commerce, depending on the charter of the merged entity and the amount of equity injected by the government. If the merged entity continues Bank Bumiputra's previous social charter, then it may continue to perform poorly. Bank of Commerce is significantly better managed than Bank Bumiputra, with a gross non-performing loans/total loans ratio of 5.2% and a risk-weighted capital adequacy ratio of 12.7% at end-March 1998. The agency has put Bank of Commerce's Individual rating on RatingAlert negative as a result of uncertainty over the terms of the merger.

Contact: Wei Kee Woods, Sam Chin, Singapore Tel: +65 221 3350

NOTES: FITCH IBCA'S SUPPORT AND INDIVIDUAL RATINGS FOR BANKS

Fitch IBCA's Individual ratings assess how a bank would be viewed if it were entirely independent and could not rely on external support. Its Support ratings deal with the question of whether a bank would receive support from its owners or from the state if it were to get into difficulty. These ratings are not debt ratings but rather, respectively, an assessment of the intrinsic strength of a bank and of any level of outside support that may, or may not, be available to it.

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