Moody's revises RHB Bank's A3 debt, deposit ratings outlook to positive

Following merger announcement involving the entity.

Moody's Investors Service has affirmed RHB Bank Berhad's A3 deposit and debt ratings, and the bank's D+ bank financial strength rating, and changed the outlook on the A3 ratings to positive.

According to a release from Moody's Investors Service, this is following the announced agreement between RHB Capital Berhad, CIMB Group Holdings Berhad and Malaysia Building Society Berhad to merge all three entities.

The ratings assigned to Moody's-rated CIMB entities involved in the transaction remain unchanged.

These entities include CIMB Group, CIMB Bank Berhad and CIMB Islamic Bank Berhad.

Here's more from Moody's Investors Service:

On 9 October 2014, CIMB Group announced that the three parties agreed in-principle to the key terms for the proposed merger, and an application was made to Bank Negara Malaysia to seek its approval. The parties expect to finalize the transaction around mid-2015.

The merger will involve a share swap between RHB Capital and the shareholders of CIMB Group. CIMB Group's assets and liabilities will be assumed by RHB Capital.

While the specific post-merger organizational structure remains unclear, based on the banks' managements' statements on their strategic objectives for entering into the merger, Moody's considers that the most likely scenario is an outright merger between RHB Bank and CIMB Bank.

The rating actions on RHB Bank reflect the likely positive credit implications it will derive from its position within a larger and stronger financial group, including increased systemic importance and consequently, a higher probability of government support.

As for the ratings of the CIMB entities involved in the transaction, details around how the transaction will be executed and what ultimate structure will emerge are insufficient at this stage to reach a conclusion on whether the merger will have any credit impact.

The positive outlook on RHB Bank's A3 debt and deposit ratings is driven by the likely positive credit implication that the bank will derive from its merger into a larger, more diversified, and financially stronger financial group.

Moody's considers it likely that RHB Bank and CIMB Bank will merge, based on statements from the banks' management teams on the business objectives of the deal. However, even if both entities continue to operate as sister entities, RHB Bank should reap benefits from access to CIMB Bank's much larger client base and distribution network.

Once the merger is finalised, RHB Bank's creditworthiness will benefit from a very high probability of parental support from the merged group and/or CIMB Bank, based on RHB Bank's strategic importance and size within the merged group.

According to Moody's, RHB Bank will also benefit from a higher probability of support from the Malaysian government (A3 positive), because it will become part of the largest financial group in Malaysia, once the three party merger is completed.