Fitch IBCA Ratings - Press Releases - Fitch IBCA Affirms Ratings For Malaysia's Bank of Commerce: Bank Bumiputra Put On RatingAlert

Fitch IBCA Affirms Ratings For Malaysia's Bank of Commerce: Bank Bumiputra Put On RatingAlert Positive

Fitch IBCA-London/Singapore-10 February 1998: Fitch IBCA, the international rating agency, today removed Bank of Commerce's Individual rating of 'C/D' from RatingAlert Negative. At the same time, the agency put Bank Bumiputra's Individual rating of 'E' on RatingAlert Positive. Both banks' Support ratings remain at '2T'.

The rating changes followed an agreement reached between Commerce Asset Holdings, Bank of Commerce's holding company, and two government agencies that own Bank Bumiputra. Under the agreement, Commerce Asset Holdings will acquire the commercial banking assets of Bank Bumiputra, after all non-performing loans are removed and transferred at face value to a unit of Danaharta, the government agency established to buy non-performing loans from commercial banks. The merged entity will be known as Bumiputra Commerce Bank. The government also agreed to buy at face value any loans that turn non-performing within an 18 months period after the merger. This will effectively protect Bumiputra Commerce Bank from further deterioration in Bank Bumiputra's loan portfolio, until October 2000. Fitch IBCA estimates that the government will need to provide up to MYR10bln to replace Bank Bumiputra's current and future non-performing loans and that only about half that amount would eventually be recoverable. Fitch IBCA said that the merger is a very significant step in the process of restructuring the Malaysian banking system, particularly since it removes Bank Bumiputra, a large bank that has been very troublesome over the past two decades requiring three separate state rescues.

The agency however warned that merging such culturally different banks would not be easy and the Bumiputra Commerce Bank's long-term prospects depend heavily on whether it is required to participate in government directed lending. Since the Government's direct ownership of Bumiputra Commerce Bank will be only about 30 percent, Fitch IBCA is of the opinion that this is much less likely to occur.

Bumiputra Commerce Bank will, however, inherit some negative aspects of Bank Bumiputra such as its high cost structure and poor market image. On the positive side, the agency said that the large amount of government assistance would result in Bumiputra Commerce Bank being well capitalised and that it would have relatively good asset quality. Since the government will continue to acquire Bank Bumiputra-sourced non-performing loans for the next two years, it is unlikely that Bumiputra Commerce Bank's non-performing loans will rise beyond 10 percent of total loans in the foreseeable future and the bank's medium-term prospects are good.

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

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