Fitch Ratings downgraded Malaysia-based Hong Leong Bank Berhad's (HLBB) long-term issuer default rating (IDR) to BBB+ from A-'and its viability rating (VR) to bbb+ from a-.
The outlook on the long-term IDR is negative, while the short-term IDR was affirmed at F2. Meanwhile, the support rating and support rating floor were affirmed at 2 and BBB-, respectively. The rating on HLBB's medium-term note programme was also downgraded to BBB+ from A-.
HLBB's long-term IDRs, VR and senior debt ratings have been downgraded to reflect a more challenging domestic operating environment as a result of the global pandemic.
The combination of multiple adverse developments, including acute economic disruptions, continued political uncertainty and a plunge in energy prices have significantly weakened Malaysia's economic outlook.
Fitch's base case forecasts the Malaysian economy will shrink by 1% in 2020 with a gradual recovery, while the growth prospects for the banking sector will remain soft into 2021. As a result, Fitch Ratings lowered HLBB's operating environment factor midpoint by one notch to bbb from bbb+.
The policy countermeasures and prudential relief introduced by the authorities since late February have been mostly positive for banks. Fitch Ratings has factored in the mitigating effects of the assistance, especially on banks' liquidity, capitalisation and asset quality.
Nevertheless, Fitch Ratings believes that the underlying asset-quality stress will inevitably build amid the economic shock that Malaysia and the world are going through, despite the extensive debt moratorium accorded to all performing individual and small and medium-sized enterprise borrowers.
Re-disseminated by The Asian Banker