KUALA LUMPUR (Sept 25): The sale of Mitsubishi UFJ Financial Group's (MUFG, A1 stable) 4.6% stake or 412 million shares in the CIMB Group Holdings Bhd (Baa1 stable), through an overnight block trade is credit positive for MUFG, according to Moody’s Investor Service.

In its statement today, Moody’s Japan K.K. financial institutions group senior vice president Raymond Spencer said the sale frees up capital and is in line with MUFG’s strategy to improve its capital efficiency.

Spencer expects the bank to raise this ratio to around 10%, although MUFG’s ratio of tangible common equity (TCE) to risk-weighted assets (RWAs) was 9.69% on a Basel III transitional phase-in basis at March 31, 2017.

“We expect that this transaction will allow MUFG to both reduce its RWAs and increase its TCE, and forecast that MUFG’s TCE/RWA ratio will improve by one to seven basis points on a pro forma basis, depending on the investment’s book value,” he said.

Last Wednesday, the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU, A1/A1 stable, a3) a subsidiary of MUFG, Japan’s largest banking group, announced it sold its 4.6% stake in Malaysia-based CIMB for about 68 billion yen.

However, as a minority shareholder, BTMU was unable to exercise influence on management decisions which made its stake in CIMB, Malaysia’s second-largest banking group by assets, a drag on MUFG’s capital ratios without much benefit.
 
MUFG has a standalone subsidiary in Malaysia which generated solid returns for the group, and will maintain its relationship with CIMB as an alliance partner, positioning MUFG as the most prominent Japanese bank that can offer Islamic finance.
 
“These attributes make more strategic sense for MUFG, than keeping the CIMB stake.
 
“Had Malaysia’s large banks consolidated as we had expected, the stake in CIMB would have been a more worthwhile investment. But large bank mergers have yet to take place, and it is not clear if they will in the foreseeable future,” the statement read.
 
The main vehicle for MUFG’s ASEAN expansion is Bank of Ayudhya (Baa1 stable, ba1) in Thailand. With a stake of about 77%, MUFG can exert management control and significant influence on Bank of Ayudhya.
 
The Philippines is another key market for MUFG, which has a 20% stake in Security Bank Corporation (Baa2 stable, baa3), a leading commercial bank there.