Malaysian banks urged to come clean about Genting HK exposure

NST Fri, Jan 28, 2022 09:13am - 2 years View Original


KUALA LUMPUR: Malaysian banks affected by the Genting Hong Kong Ltd (Genting HK) fiasco should be transparent over their exposure in the company, industry observers said.

This would help prevent panic or unnecessary attention that might lead to the risk of bank run, they added.

While the potential losses from the reported RM2.5 billion Genting HK loan exposure would cause a dent on their finances, the industry observers, however, dismissed any reckless decision by the banks in lending to the troubled Asian cruise operator.

It was reported that Malayan Banking Bhd (Maybank), CIMB Bank Bhd and RHB Bank Bhd were among some of the key unsecured creditors of Genting HK.

According to reports, the banks had a combined exposure of US$600 million (RM2.5 billion), and huge provisions caused by the beleaguered cruise operator would have a huge impact on their profits and share prices.

Genting HK filed to wind up the company last week, after it warned of a potential cross-default amounting to US$2.78 billion (about RM11.66 billion) due to the insolvency of its indirect wholly-owned German-based subsidiary MV Werften Holdings Ltd as negotiations with the German government to rescue the unit had failed.

Genting HK is controlled by Tan Sri Lim Kok Thay, who owns 75.5 per cent of the company.

An industry specialist said it was quite a delicate balance for the affected banks in respect to public disclosure on the issue.

"To a large degree, Bank Negara Malaysia has been extremely thorough in its audit and monitoring activities in respect to banking operations. It covers all aspects such as risk management, product development, governance and business strategy, among others. 

"In that sense, we can safely say that banking system is very sound and it is able to absorb shocks. The other spectrum will be to manage public perception towards the stability of the banking system. The authority will need to be tactful (in tackling the issue)," the specialist said.

Putra Business School associate professor Dr Ahmed Razman Abdul Latif does not think that it was a reckless decision to lend to Genting HK as nobody could predict things like Covid-19 or a "Black Swan" event to severely affect the global economy.

"When these unsecured loans were given to Genting HK, none of these banks could predict what happen afterwards such as Covid-19 pandemic which is considered as a 'Black Swan' event. 

"Normally, the cruise and casino operator business carries low risk and good returns and these banks probably have performed due diligence and willing to give unsecured loans based on the available facts and data at that time," he added.

Razman said it remained to be seen whether Maybank, CIMB and RHB could recoup some of the losses through the sale of Genting HK's assets during the liquidation process.

He added that even if it eventually became a total loss, the combined pre-tax profit of the three banks, at RM12.8 billion in 2020 which would likely be higher in 2021 and 2022, would be able to cushion an impact.

"The RM2.5 billion will probably be in the region of 15 per cent of their combined profit this year. If they have to bear the whole losses, there will be some negative impact. But I do not think it is going to be a significant one since Malaysian banks have improved significantly on their liquidity and capital position since the last Asian financial crisis in 1997 and therefore can absorb such loss," he said.

Maybank had on January 24 dismissed allegations that it would face major financial trouble on exposure to Genting HK as "baseless", while CIMB said it does not disclose or comment on specific names or clients.

"We are on track to achieve our 2021 key financial targets including our credit cost guidance to market," CIMB said.

RHB, on the other hand, reiterated its financial resilience after being connected to potential losses for Malaysian banks that had provided credit to Genting HK.

Rakuten Trade Sdn Bhd vice-president of equity research Thong Pak Leng said the firm expected some impairments to be done by these banks soon.

"Perhaps this will affect some dividend payment. It will affect these banks in some degree but not significantly," he said.

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