By Samantha Joseph
Fitch Ratings’ revision of Malaysia’s ratings should not be recognised as the be-all and end-all of Malaysia’s international credit ratings, especially in light of the ‘stable’ outlook backed by Standard & Poor and Moody’s just this year.
“We have to recognise that rating agencies have their own individual assessments as well as their own individual concerns. It’s good to capture a diversity of market views,” Yeah Kim Leng of RAM Holdings pointed out.
Standard & Poor had affirmed its rating of Malaysia as having a stable outlook, and similar to Fitch, affirmed an ‘A-’ long-term foreign currency sovereign credit rating and an ‘A’ long-term local currency sovereign credit rating in July. Moody’s backed a ‘stable’ outlook in June this year.
“We also recognise that sometimes these rating agencies do compete to be the market leader in issuing any game-changing opinions,” Yeah added.
This race to lead when it comes to giving an exciting market opinion may inspire certain calls to be made. According to Yeah, this allows the credit rating agency to be in the driver’s seat in terms of establishing their credibility if they make the right calls.
Yeah Kim Leng
Yeah brings up the global financial crisis in 2008, where international credit agencies (ICRAs) gave high credit ratings to subprime mortgage lenders that eventually went bankrupt, noting that ICRAs took a severe credibility beating over it.
“These reports should be taken as just one part of a broader surveillance of all parties that includes equity analysts, research houses and rating agencies,” he said.
A senior economist professed some misgivings with Fitch’s methodology in terms of calculating the non-financial public sector deficit as well as the general government budget deficit for 2011.
“In reference to the Fitch report, we couldn’t find data to substantiate some of their numbers. It could be an oversight on our part, but there are a few numbers there that gives us some misgivings,” he said. “Our source was the Ministry of Finance, so we’re not sure where they get their data.”
Fitch has put forward their number for the government budget deficit as 3.8% of GDP in 2011, while local numbers that have been printed range from between 5.4% and 4.8% of GDP for that same year.
This would cause a difference when comparing the numbers Fitch set down for 2012, which is a generally accepted 4.7% (the Ministry of Finance put forth 4.8%), especially when arguing if there is an increase or a decrease, and if it looks like the debt will continue going up.
The economist said that the numbers by credit ratings agencies are usually calculated according to their own methodologies.
At the same time, he noted that ICRAs tend to underestimate the Asian region in comparison to Europe and developed nations. “For example they reaffirmed France’s outlook as ‘stable’. France is literally at the heart of the Eurozone crisis at the moment and there are a lot of policies that are not conducive to its financiers that are being implemented.”
He also pointed out that Malaysia has a much lower risk of foreign capital pullback compared to Europe, where the Fitch rating would have carried far more weight. “We have a lot of foreign reserves with Bank Negara (currently RM438.7 billion), and we still maintain a current account surplus, meaning we are exporting more than we’re importing.”
Fitch’s step of coming out with a revision before the Budget was an attempt at ‘pre-empting negative expectations that may not materialise’, he adds. “I think that type of reaction is not the best, obviously. The more conservative approach is to wait for the budget.”
Yeah does point out a redeeming factor to all this: “I think in Malaysia, the policymakers know that these are the fiscal concerns and they’ve been actively trying to address it. It would be difficult for further postponement given the election is over.”
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