Moody's changed the Macro Profile for Malaysia to "Strong-" from "Strong", to reflect the deteriorating operating environment for the Malaysian banks, in particular in the country's heightened external vulnerabilities given the deterioration in the current account surplus amidst volatile capital flows.

The change of the Macro Profile has led Moody's to reassess all Malaysian financial institutions' financial factors and standalone baseline credit assessments (BCA).

The BCAs of the rated financial institutions in Malaysia are not affected by this Macro Profile change. The rated financial institutions include: (1) Malayan Banking Berhad; (2) Public Bank Berhad; (3) CIMB Bank Berhad, (4) CIMB Islamic Bank Berhad; (5) CIMB Group Holdings Berhad; (6) RHB Bank Berhad; (7) Hong Leong Bank Berhad; (8) AmBank (M) Berhad; (9) HSBC Bank Malaysia Berhad; (10) Cagamas Berhad; (11) Export-Import Bank of Malaysia Berhad; (12) Standard Chartered Bank Malaysia Berhad.

RATIONALE FOR MACRO PROFILE CHANGE

Of late, Malaysia has been facing multiple external and domestic challenges. The following factors have all contributed to a weakening of the ringgit over the past year: (1) lower commodity prices; (2) increasing global risk aversion; and (3) domestic political challenges that added to the worsening sentiment towards Malaysia.

Through the first three quarters of 2015, Malaysia's current account surplus nearly halved over the same period in 2014. Gross foreign exchange reserves have also run down, and now provide a thinner buffer against the increased volatility in capital flows.

The weakening ringgit, coupled with political tensions and the prospects of higher prices, has dampened consumer sentiment, which in turn, will be a factor moderating economic growth in coming years.

Domestic political risks have increased over 2015, but have not adversely affected policy reform as the government has demonstrated its commitment to goals for the reduction of the fiscal deficit. Nevertheless, the further softening of oil prices since October 2015 may require further expenditure restraint to meet the deficit target.

MALAYSIA'S MACRO PROFILE: STRONG-

Banks in Malaysia operate in a country with a very high degree of economic strength, a high degree of institutional strength and moderate susceptibility to event risk.

Private-sector debt, and particularly, household debt, is high relative to GDP. However, credit growth has been moderating in recent quarters, reflecting in part macro prudential measures as well as worsening sentiment.

The banks are largely deposit- funded with a low reliance on wholesale funding. Additionally, the stability of the banking system is supported by a moderately competitive landscape.