KUALA LUMPUR, April 21 – RAM Ratings has viewed RHB Capital Bhd’s proposed corporate restructuring as a proactive move in light of the impending changes in Bank Negara Malaysia’s (BNM) regulations. The BNM discussion paper, Capital Adequacy Framework for Financial Holding Companies (Banking Groups), issued last October, requires financial holding companies (FHCs) to have minimum capital-adequacy requirements, similar to banks.

RAM Ratings, in a statement, said the proposed BNM framework is aimed at ensuring that FHCs are adequately capitalised to support their group-wide risks, and address the multiple gearing of capital and excessive leverage within the respective financial groups.

It said the proposal is also intended to achieve greater consistency in the disclosed capital ratios among financial groups headed by banks and FHCs. RAM financial institution ratings co-head Sophia Lee said while there is no regulatory arbitrage on capital recognition under FHCs or banks under the proposed regulation, capital securities issued by FHCs are, nevertheless, typically rated lower than those issued by banks.

“This is due to structural subordination from a rating perspective, which may increase the cost of capital,” she added. The recent announcement by RHB Capital, which would lead to RHB Bank Bhd (rated AA2/Stable/P1) rising to the top of the banking group instead of RHB Capital, will be more capital-efficient and eliminate double leverage. RAM Rating Services Bhd plays a leading role in providing independent credit opinions that are essential for investors and market participants.

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