Rating firms: 1MDB not a risk to public finances

Despite the recent 1MDB corruption allegations, two international rating agencies have affirmed Malaysia's sovereign rating.
Despite the recent 1MDB corruption allegations, two international rating agencies have affirmed Malaysia's sovereign rating.PHOTO: BLOOMBERG

Two international rating agencies have affirmed Malaysia's sovereign rating amid corruption allegations linked to debt-laden state investment fund 1Malaysia Development Berhad (1MDB), saying 1MDB "does not pose a systemic risk to public finances" while acknowledging that political risks have increased for the country.

"While we do not regard 1MDB as posing a systemic risk to public finances, the economy, or the banking system, we have acknowledged the upturn in political risk associated with the allegations of mismanagement and corruption," Mr Christian de Guzman, vice-president of Moody's Investors Service, told The Straits Times.

Moody's affirmed Malaysia's rating at A3 with a positive outlook. It had warned in May that it would review Malaysia's rating outlook if the "magnitude of support" by the government to 1MDB grew bigger and derailed fiscal consolidation.

 Mr de Guzman had at the time opined that the government's handling of the 1MDB issue had not been "as transparent as we would have hoped or expected".

On the banking sector, Moody's vice-president Eugene Tarzimanov saw 1MDB as having a low direct risk as the exposure was small, at less than RM5 billion (S$1.8 billion).

"Indirectly, however, there is a risk that the Malaysian banks will face higher wholesale funding costs due to weaker investors' confidence related to 1MDB. We consider that this risk is manageable for the banks because they maintain generally strong funding profiles," said Mr Tarzimanov.

Standard and Poor's (S&P) Rating Services also affirmed Malaysia's rating at "stable".

"Despite the current political pressures, it has not interfered with policymaking yet. We expect the administration to carry on its fiscal and economic reforms," said Mr Yee Farn Phua, associate director of Asia-Pacific sovereign ratings at S&P.

1MDB is under investigation by a special task force following a Wall Street Journal report on July 3 alleging that US$700 million (S$950 million) linked to 1MDB was deposited into Prime Minister Najib Razak's private bank accounts.

A version of this article appeared in the print edition of The Straits Times on July 16, 2015, with the headline 'Rating firms: 1MDB not a risk to public finances'. Print Edition | Subscribe