RAM Ratings reaffirms ratings of CIMB Group, CIMB Bank, CIMB Islamic Bank and CIMB Investment Bank

Published on 06 August 2012

RAM Ratings has reaffirmed the respective long- and short-term financial institution ratings of CIMB Bank Berhad (“CIMB Bank”), CIMB Islamic Bank Berhad (“CIMB Islamic”) and CIMB Investment Bank Berhad (“CIMB Investment”), at AAA and P1. Concurrently, CIMB Group Holdings Berhad’s (“CIMB Group” or “the Group”) respective long- and short-term corporate credit ratings of AA1 and P1, along with its issue ratings, have also been reaffirmed (refer to Table 1 below). All the long-term ratings have a stable outlook.  

Instrument	Rating action	Rating(s)	Outlook
RM6.0 billion Conventional and Islamic Commercial Papers/Medium-Term Notes Programme (2008/2038)	Reaffirmed	AA1/P1	Stable
RM3.0 billion Subordinated Notes Programme (2009/2074)	Reaffirmed	AA3	Stable
Note: The 2-notch differential between CIMB Group’s long-term corporate credit rating and that of its Subordinated Notes Programme reflects the subordinated position of the Subordinated Notes and their optional interest-deferral feature.

CIMB Group is the fifth-largest banking group in ASEAN. Its Malaysian banking subsidiaries, i.e. CIMB Bank, CIMB Islamic and CIMB Investment, have robust franchises and operate on a universal-banking model. CIMB Bank is also viewed as a systemically important bank in Malaysia. As a financial-services holding company, CIMB Group relies on dividend income from its subsidiaries for debt servicing. As such, the Group’s corporate credit ratings reflect the credit metrics of its core banking subsidiaries and its structural subordination as their shareholder. 

The Group is geographically diverse, with foreign operations contributing 38% of its pre-tax profit in fiscal 2011. In particular, Indonesia made up 30% of its bottom line for the same year. This is anchored by the Group’s strong presence in that country through PT CIMB Niaga Tbk, the fifth-largest bank in Indonesia.  

Meanwhile, the Group recently embarked on further expansion and has proposed to acquire a 60%-stake in Philippines-based Bank of Commerce – a move that will largely complete its ASEAN footprint. In addition, its regional aspirations are enhanced by the proposed acquisition of The Royal Bank of Scotland’s Asia-Pacific investment-banking and cash equity businesses. This will further strengthen CIMB Group’s capital-market franchise and cross-border distribution capabilities. While recognising the merits of regional expansion, we are also cognisant of the risks associated with the Group’s rapid growth in Indonesia and other emerging markets. On this front, the management has indicated that further major acquisitions are unlikely in the near term; integration and extraction of synergies from the new entities will be its main focus for now.

CIMB Group’s asset quality had improved, with the value of its gross impaired loans (“GILs”) declined to RM9.1 billion as at end-March 2012 (end-December 2010: RM10.3 billion). As a result, its GIL ratio had been lowered to 4.8% as at the same date (end-December 2010: 6.1%). Similarly, its credit-cost ratio had eased to 0.3% in fiscal 2011 (fiscal 2010: 0.4%). In spite of its flat pre-provision profit, CIMB Group’s pre-tax profit climbed up to RM5.2 billion in fiscal 2011 (fiscal 2010: RM4.6 billion), mainly due to lower impairment charges and a one-off RM250 million gain on disposal of subsidiaries. 

At company level, the Group’s capitalisation is deemed moderate. Although its double-leverage ratio has been rising in the last 2 years, this should ease if its planned disposal of non-core assets materialises over the medium term.

CIMB Bank Berhad
CIMB Bank’s AAA/Stable/P1 ratings are supported by its systemic importance as one of the 3 largest commercial banks in Malaysia. It commands entrenched business positions in the retail- and wholesale-banking segments.

CIMB Bank’s GIL ratio had eased to 3.5% as at end-March 2012 (end-December 2010: 3.9%). Although this is still weaker compared to its AAA-rated peers, we note that CIMB Bank’s credit-cost ratio has remained sound at about 0.3% over the last 2 years. CIMB Bank’s funding and liquidity positions have also stayed healthy; its loans-to-deposits ratio has been hovering at 77%-79% over the past 4 years. CIMB Bank’s respective tier-1 and overall risk-weighted capital-adequacy ratios (“RWCARs”) of 10.6% and 15.1% as at end-March 2012 are considered comfortable.

CIMB Islamic Bank Berhad
CIMB Islamic’s AAA/Stable/P1 ratings reflect the credit strength of its parent, CIMB Bank, underscored by their highly integrated operating models. CIMB Islamic enjoys a sturdy franchise and has established itself as the second-largest Islamic bank in Malaysia.

In recent years, CIMB Islamic’s financing portfolio has been charting rapid growth. While this has led to a better financial performance, CIMB Islamic’s capitalisation has been weakened, albeit still deemed sound. Meanwhile, CIMB Islamic is exposed to a high level of depositor-concentration risk as it has a big proportion of deposits from government and statutory bodies as well as business enterprises. Nonetheless, RAM Ratings is of the view that funding and capital support from CIMB Bank will be readily extended should the need arise.

CIMB Investment Bank Berhad
CIMB Investment holds AAA/Stable/P1 ratings, mirroring those of CIMB Bank and reflecting the close relationship between these 2 entities. Given its integral role within the larger group, support is expected to be forthcoming, if needed.

CIMB Investment is one of the leading investment banks in Malaysia and commands prominent positions in a broad array of capital-market activities. Under the universal-banking model, CIMB Investment maintains a lean balance sheet as most lending and treasury assets, as well as debt-capital-market activities, are booked under CIMB Bank. As at end-March 2012, its tier-1 RWCAR of 17.0% is deemed satisfactory given that most of the credit and market risks reside with CIMB Bank.

Media contacts
Lim Yu Cheng
(603) 7628 1188
yucheng@ram.com.my

Chew Wei Li
(603) 7628 1025
weili@ram.com.my

Amy Lo
(603) 7628 1078
amy@ram.com.my