Nov 2, 2012 -
MARC has affirmed its long-and
short-term financial institution (FI) ratings on CIMB Bank Berhad (CIMB Bank)
at AAA/MARC-1, reflecting the bank’s very strong domestic competitive position,
resilient earnings generation, sound risk management and strong capital
adequacy. The ratings also incorporate the rating agency’s expectation of
support given the bank’s systemic importance to the domestic banking sector.
Concurrently, MARC has also affirmed the ratings of all corporate debt
issuances by the bank: a full list of these issuances is given at the end of
this section. The outlook on the ratings is stable. Subordinated debt and
hybrid capital issued by CIMB Bank are notched down from the bank’s FI rating
in accordance with MARC’s assessment of their respective relative loss severity
risk profiles.
The CIMB Bank Group is the
second largest commercial bank group in Malaysia, with total assets of RM246.7
billion, total customer deposits of RM180.7 billion and gross loans, advances
and financing totalling RM149.8 billion as at June 30, 2012. As a core
component of CIMB Group Holdings Berhad’s (CIMB Group) universal bank, CIMB
Bank’s franchise and operations remain closely entwined with that of CIMB Group
as a result of the significant degree of inter-group coordination and
cross-selling across the group. Like CIMB Group and its other key entities,
CIMB Bank has rapidly expanded through both acquisitions and organic growth.
The group’s and bank’s good track record of acquiring and integrating acquirees,
particularly its ability to manage acquisition risk, remains an important
rating consideration for CIMB Bank’s ratings, particularly cross-border
acquisition-related risk. The bank is continuing its strategy of building a
regional consumer and commercial banking franchise.
CIMB Bank is both the parent and
principal operating entity within the CIMB Bank Group; its total assets and
post-tax profit as at December 31, 2011 respectively represent approximately
79.6% and 97.8% of the total assets and total profit after taxation and zakat
of the CIMB Bank Group for the same period. A key credit strength of CIMB Bank
remains its strong domestic franchise and sustainable market positioning among
both retail and corporate customers in its home market. MARC considers the
level of entrenchment of its banking franchise to be high, evidenced by its
sizeable domestic market share for residential mortgages and retail deposits.
CIMB Bank’s gross impaired loans
have declined in absolute terms to RM3.9 billion as at June 30, 2012 from RM4.0
billion at year-end 2011. This was achieved with a smaller amount of loans
classified as impaired during the six months to June 30, 2012 (1H2012) as well
as a healthy level of write-backs, reclassifications to non-impaired and
write-offs. The bank’s reserve coverage of impaired loans is satisfactory at
80.4% as at end-June 2012; however, MARC notes that CIMB Bank’s gross impaired
loans ratio and loan loss coverage are somewhat weaker than that of its peers.
Nonetheless, MARC expects CIMB’s asset quality to remain sound based on recent
developments in the bank’s loan book and taking into account CIMB Bank’s credit
origination and risk management capabilities. At the same time, the rating
agency cautions that the bank’s exposures to the construction and real estate
sector could give rise to higher levels of problem loans in the event of a
deterioration of industry fundamentals for these sectors.
CIMB Bank posted a lower pre-tax
profit and net profit of RM1.5 billion and RM1.2 billion respectively for
1H2012. The bank’s performance reflected a further narrowing of net interest
margin (NIM), the consequence of increased competition for loans and deposits.
Apart from the lower NIM, the bank’s results were also affected by higher
personnel costs and absence of dividends from subsidiaries. Consequently, the
bank posted a lower pre-provision pre-tax profit of RM1.5 billion compared to
RM2.0 billion for 1H2011. This was partly offset by a decrease in credit costs
for the period, as evidenced by lower allowances for impairment losses on
loans, advances and financing, and other receivables. CIMB Bank’s cost-income
ratio climbed to 51% during 1H2012, after declining to 42% for 1H2011 and 46%
for the full year 2011.
At the consolidated level, the
group’s pre-tax profit for 1H2012 was up 8% to RM1.9 billion compared to RM1.7
billion for 1H2011. While CIMB Bank Group’s performance has been characterised
by an extended period of improving and consistent earnings generation, the
rating agency also notes that treasury operations, which have generally
exhibited higher volatility of earnings, have been contributing a rather large
portion of the group’s pre-tax profit. Nonetheless, the continued growth in
consumer banking revenues should impart improved earnings stability through the
business cycle.
The bank’s capital strength
should provide support for its growth strategies. As at June 30, 2012, CIMB
Bank’s Tier-1 and total capital ratio remained strong at 13.1% and 15.1%, net
of proposed dividends, respectively. The increase in eligible Tier-1 capital
from RM15.5 billion at end-June 2011 to RM15.7 billion at end-June 2012 was
primarily due internal equity growth. Its eligible Tier-2 capital was boosted
by an additional issuance of subordinated debt capital and a large increase in
general reserves.
CIMB Bank’s funding profile
remains sound, based on a healthy mix of retail and corporate deposits, as
reflected by the loan-deposit ratio of 79.3% as at end-1H2012. Low-cost
deposits accounted for 36.2% of its total customer deposits as of the same
date.
The stable outlook on the
ratings reflects MARC’s expectations that CIMB Bank will maintain strong
capitalisation, consistent core profitability at the bank and on a consolidated
basis, and sustain or improve its competitive standing.
The full list of rated corporate
debt issues affirmed with a stable outlook is as follows:
• RM5.0 billion Subordinated
Debt Programme affirmed at AA+
• RM4.0 billion Perpetual
Non-Innovative Tier-1 Stapled Capital Securities affirmed at AA
• RM1.0 billion Innovative
Tier-1 Capital Securities affirmed at AA
• RM1.5 billion Subordinated
Bonds affirmed at AA+
Contacts:
Milly Leong, +603-2082 2288/ milly@marc.com.my
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my.
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