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

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

Published on 01 October 2013

RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of CIMB Bank Berhad (CIMB Bank), CIMB Islamic Bank Berhad (CIMB Islamic) and CIMB Investment Bank Berhad (CIMB Investment). Concurrently, CIMB Group Holdings Berhad’s (CIMB Group or the Group) AA1/Stable/P1 corporate credit ratings have also been reaffirmed. The Group’s corporate credit ratings reflect the robust credit metrics of its core banking subsidiaries and its structural subordination as their shareholder, given that it predominantly relies on dividend income from its subsidiaries for debt servicing. We have also reaffirmed all the issue ratings of CIMB Group and CIMB Bank (refer to Table 1 below).

Table 1: Issue ratings of CIMB Group and CIMB Bank

CIMB Group	Rating action	Rating(s)
RM6.0 billion Conventional and Islamic Commercial  Papers/Medium-Term Notes Programme (2008/2038)	Reaffirmed	AA1/Stable/P1
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 Bank	Rating action	Rating
RM10.0 billion Tier-2 Subordinated Debt Programme  (2013/2073)	Reaffirmed	AA1/Stable/-

CIMB Group is the fifth-largest ASEAN banking group by assets. Operating on a universal-banking platform, the Group’s banking subsidiaries in Malaysia – CIMB Bank, CIMB Islamic and CIMB Investment – enjoy robust franchises. The Group’s capital-market franchise and cross-border distribution capabilities are expected to strengthen with the acquisition of The Royal Bank of Scotland Group’s Asia-Pacific investment-banking and cash equities businesses (completed in 2Q FY Dec 2013). The Group’s operations are geographically diversified. Pre-tax profit contributions from foreign operations, which are expected to increase further, contributed 39% of its pre-tax profit in 1H FY Dec 2013. Contributions from Indonesia constituted the bulk of these, although we note its operations there introduce a higher degree of operating risk.

The Group chalked up a pre-tax profit of RM5.7 billion in fiscal 2012, translating into a healthy return on assets of 1.8%. Nonetheless, we note that the outlook on its earnings has become more challenging amid the slowdown in treasury and capital-market activities, while its cost-to-income ratio is expected to remain elevated. Elsewhere, its gross impaired-loan (GIL) ratio had eased further to 3.6% as at end-June 2013 (end-December 2011: 5.1%).

CIMB Group’s company-level double-leverage ratio remained relatively high at 1.21 times as at end-June 2013 (end-December 2012: 1.33 times). Its company-level adjusted gearing ratio came in at 0.31 times as at the same date (end-December 2012: 0.36 times). Meanwhile, the Group has instituted a dividend reinvestment scheme that could strengthen its capitalisation levels.

CIMB Bank Berhad
CIMB Bank is the core banking entity within CIMB Group. Its AAA/Stable/P1 ratings are supported by its systemic importance as Malaysia’s third-largest commercial bank. CIMB Bank commands entrenched business positions in the domestic retail- and wholesale-banking segments.

While CIMB Bank’s GIL ratio is still higher than its AAA-rated peers’, it has continued to improve. This had been earlier supported by a decline in its impaired loan base in recent years; the further easing of this ratio to 2.7% as at end-June 2013 (end-December 2011: 3.6%) was on account of its loan expansion in 1H FY Dec 2013. Meanwhile, its funding and liquidity profiles are considered healthy; as at end-June 2013, CIMB Bank’s loans-to-deposits ratio stood at a healthy 78.8% (industry average: 77.7%) while its liquid-asset ratio came up to a sound 25.3%. CIMB Bank’s capitalisation is set to benefit from the reinvestment of the Group’s dividends. With this, CIMB Bank’s common equity tier-1 (CET-1) capital ratio clocked in at an adequate 8.5% as at end-June 2013.

CIMB Islamic Bank Berhad
CIMB Islamic’s AAA/Stable/P1 ratings reflect the credit strength of its parent, CIMB Bank, premised on their highly integrated operating models. CIMB Islamic shares common infrastructure, risk-management systems, treasury operations and distribution channels with its parent, thus allowing the Group to reap the benefits of scale economies and reduce resource duplication. RAM sees a very high likelihood of support from CIMB Bank if necessary.

CIMB Islamic’s asset quality is deemed healthy, although its financing portfolio still lacks seasoning given its relatively strong growth in the last few years. The rapid financing growth had weakened its capitalisation ratios; as at end-June 2013, its CET-1 capital ratio stood at 9.1%. In terms of funding, we note that the level of CIMB Islamic’s depositor-concentration risk remains relatively high. That said, RAM opines that CIMB Bank will readily extend funding support if needed.

CIMB Investment Bank Berhad
CIMB Investment holds AAA/Stable/P1 ratings, reflecting its integral role as the investment-banking and stockbroking arm of CIMB Group. Given this, support from the latter is expected to be forthcoming, if required.

CIMB Investment commands prominent positions across a broad array of capital-market activities, underpinned by its solid franchise and regional distribution capabilities. It has consistently ranked among the top 3 in the domestic debt- and equity-capital-market league tables. CIMB Investment’s regional network underlines its promising earnings potential, although its earnings profile will remain inherently volatile. It maintains a lean balance sheet while its credit and market risks are considered manageable. As at end-June 2013, its CET-1 capital ratio stood at 20.5%.

Media contacts

Peter Kong
(603) 7628 1029
peterkong@ram.com.my

Cheryl Yong
(603) 7628 1072
cheryl@ram.com.my