KUALA LUMPUR (Dec 6): Malayan Banking Bhd (Maybank) faces rising problem assets in two of its key markets namely Singapore and Hong Kong that have pushed the group's problem loans ratio to 2.2% in September from 1.9% at end-2015, according to Moody's Investors Service.

In a report entitled Malayan Banking Bhd: Increased Regional Risks Mitigated by Strong Buffers released today, Moody's said the banking group's strong buffers mitigate the related risks.

"The rising problem assets in Singapore and Hong Kong reflect primarily idiosyncratic risk, and we expect in the longer term that Maybank's credit profile will benefit from its presence in these otherwise low-risk markets," said Moody's vice president and senior credit officer Eugene Tarzimanov in a statement today.

"Maybank's solid and growing capital base also provides the bank with a good buffer against rising problem assets and will enable it to maintain its credit standing in line with its current ratings," he added.

Moody's report pointed out that Maybank's problem loans in Singapore are mostly related to oil and gas accounts, while those in Hong Kong stem from a small number of large problem loans.

It said Singapore is Maybank's most important foreign operation, accounting for 25% of its gross loans as of September 2016, while Hong Kong accounted for a less material 2% share of its loan book — a jump in delinquencies there has put its Hong Kong problem loans ratio well ahead of other markets, from virtually nil in 2015.

Moody's said although the performance of domestic Malaysian loans had also mildly weakened, it was in line with its expectation and mainly came from the business and corporate banking divisions, including the commodity sectors.

Despite the weakening conditions, Maybank's credit profile benefits from its presence in the two developed markets given the generally less volatile credit and economic conditions, stable employment and better protection of creditor rights, relative to emerging markets, noted Moody's.

"The bank also benefits from its strong and rising capitalisation, adequate problem loan coverage, good profitability and solid liquidity and funding profiles," it added.

At 12.30pm, Maybank rose three sen or 0.38% to RM7.87 with 1.35 million shares changing hands, for a market capitalisation of RM80.22 billion.