MARC AFFIRMS BANK PEMBANGUNAN’S FINANCIAL INSTITUTION AND CP PROGRAMME RATINGS AT AAA AND MARC-1ID/MARC-1 RESPECTIVELY

May 30, 2013 -

MARC has affirmed its AAA financial institutions rating on Bank Pembangunan Malaysia Berhad (BPMB).  MARC has also affirmed its MARC-1ID/MARC-1 programme ratings on BPMB’s Islamic and/or Conventional Commercial Papers (CP) Programme of up to RM2.0 billion with a stable outlook. 

The ratings reflect support from the Government of Malaysia on account of BPMB’s status as a wholly-owned development financial institution (DFI) and its role in financing infrastructure projects and sectors identified as growth areas by the government. The government’s capacity and willingness to provide substantial ongoing support to BPMB’s operations is evidenced by the government guarantees extended to the bank’s lenders, government compensation for interest income and the provision of an infrastructure support fund which can be used to mitigate credit losses on infrastructure loans. The ratings also reflect the bank’s sound capitalisation levels, adequate earnings and stable funding and liquidity profile.

BPMB’s loan portfolio exposure is concentrated in the capital-intensive infrastructure, maritime, oil and gas and technology sectors. BPMB’s lending to private sector enterprises in the maritime, oil and gas and technology sectors subject the DFI to a higher risk of default than loans to the infrastructure sector, the majority of which relate to government-backed projects. The higher credit risk profile of the bank’s credit portfolio is largely reflected by its overall gross impaired loans ratio of 11.8% as of end-September 2012, which was higher than 11.4% as at end-December 2011. The maritime and technology sectors have the highest ratios of impaired loans of 72.7% and 69.3% respectively, while the infrastructure sector, which constituted 84.6% of the loan book, has the lowest impaired loans ratio of 4.6%. The bank’s reserve coverage against impaired loans declined marginally to 81.0% (2011: 81.7%); MARC believes that the bank will need to increase its impairment allowance in the next 12-18 months if the upward trend in impairment persists.  However, MARC notes some pressure on asset quality as evidenced by a moderately higher level of loan delinquencies as at end-September 2012; past due but not impaired loans increased to RM92.9 million compared to RM6.1 million recorded as at end-December 2011. This amount was, however, still lower than RM254.9 million recorded as at end-December 2010.

BPMB’s strong capitalisation supports the higher credit risk it assumes as a DFI. The bank’s core capital ratio (CCR) and risk-weighted capital ratio (RWCR) strengthened to 35.71% (2011: 33.04%) and 37.57% (2011: 34.75%) respectively as at end-September 2012, due to internal capital generation and lower risk-weighted assets. During the nine months to September 30, 2012 (9M2012), the bank’s total capital base grew by 1.5%, mainly driven by a 1.4% increase in reserves and 2.5% increase in government grants and subsidies, while risk-weighted assets of BPMB declined by 4.8% due to lower total assets, commitments and contingencies. Tier 1 capital, which consists of share capital and reserves, constitutes 95% of total capital base and reflects the high quality of the bank’s capital. 

During 9M2012, BPMB’s net profit declined by 44.7% to RM230.6 million from RM416.6 million in 9M2011 due to lower net interest income and higher impairment charges. The bank registered lower net interest income due to compressed margins and non-accrual of interest on new impaired loans during the period. Deterioration in asset quality also resulted in higher impairment charges on loans and financing of RM251.3 million in 9M2012 (9M2011: RM142.9 million). Notwithstanding the higher impairment charges, the bank’s profitability may be further pressured should more allowance be made on impaired loans and financing in view of the bank’s lower reserve coverage against impaired loans and higher impaired loans and financing as at end-September 2012. Operating expenses decreased slightly to RM54.8 million (9M2011: RM54.9 million) attributed to lower establishment-related and general administrative expenses, moderated by higher personnel costs.

The stable outlook reflects MARC expectations that BPMB’s asset quality should remain manageable and that its profitability will remain adequate. The stable outlook also reflects the bank’s strong capital position and strong government support that mitigate any concern on deterioration in asset quality and profitability. 

Contacts:

Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my;

Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my.