MARC affirms CIMB bank's financial institution and corporate debt ratings

MARC has affirmed its financial institution (FI) ratings on CIMB Bank Berhad (CIMB Bank) at AAA / MARC-1 with a stable outlook. Concurrently, MARC has also affirmed its corporate debt ratings on CIMB Bank’s existing subordinated debt and hybrid securities, which have been notched down from the bank’s FI ratings based on their relative loss severity risk profiles. The full list of issue ratings is as follows:

• RM10.0 billion Basel III-compliant Tier 2 Subordinated Debt Programme affirmed at AA+/stable
• RM5.0 billion Subordinated Debt and Junior Sukuk Programmes affirmed at AA+/AA+IS/stable

MARC has also withdrawn its AA/stable rating on CIMB Bank’s RM1.0 billion Innovative Tier 1 Capital Securities upon its full redemption on October 5, 2018.

The affirmed ratings incorporate CIMB Bank’s well-established banking franchise and strong domestic market position in loans and deposits. The ratings also acknowledge CIMB Bank’s high systemic importance in the domestic banking industry. It is the third-largest bank in Malaysia by asset size, accounting for 12.2% and 16.5% of total loans and deposits of the domestic banking industry as at end-June 2018. The bank’s consolidated gross loans stood at RM277.3 billion, with domestic loans continuing to make up the bulk of the total (71.5%), followed by Thailand (10.8%) and Singapore (10.1%).

For 1H2018, CIMB Bank’s loan growth was higher at 8.0% y-o-y (excluding the foreign exchange effect) on the back of steadier growth in Singapore (6% y-o-y) and Thailand (7.1% y-o-y). This improved growth follows subdued growth over the last two years as the bank undertook portfolio rebalancing in its key overseas markets. Nonetheless, its domestic market remains the key growth driver, achieving a loan growth of 7.6% y-o-y, higher than the domestic industry growth of 5.0%  y-o-y. The group’s focus remains on the retail segment with loans to individuals and SME businesses constituting 65.8% of total loans as at end-June 2018 (2016: 64.0%). 

CIMB Bank’s gross impaired loans (GIL) ratio stood at 2.31% as at end-June 2018 (2016: 2.15%). Its operations in Thailand and Singapore continue to reflect higher impairments although the pace of impairment growth has declined as the group undertook measures to reduce loan exposure to problematic segments such as the SME segment in Thailand and the oil and gas segment in Singapore. Domestically, CIMB Bank’s GIL improved to 1.65% (2016: 1.79%), slightly higher than the domestic banking industry average of 1.59%; the improvement was largely supported by stronger loan growth. Going forward, external risks arising from the US-China trade war and US policy tightening could assert pressure on borrowers’ repayment capability which would impact the bank’s asset quality.

CIMB Bank’s consolidated CET1 and total capital ratios increased slightly to 12.3% and 17.5% as at end-June 2018, attributed to the group’s dividend reinvestment plan and capital optimisation measures, but were moderated by the impact from MFRS 9. The adoption of MFRS 9 in January 2018 led to a reduction in equity of RM882.3 million or 2.1% of the total capital base. MARC views that the bank’s strong capital buffer which is above the minimum regulatory requirement would remain supportive of credit expansion.

For 1H2018, the bank’s consolidated net profit declined by 3.3% y-o-y to RM2.0 billion. The operating performance was impacted by higher cost of funds which resulted in a flat net interest income growth despite higher loan growth. The increase in wholesale deposits during the period made funding costlier. Non-interest income declined by 3.3% due to soft capital market conditions in Malaysia. Over the near term, the group’s earnings are expected to improve should its loan growth be maintained and impairment charges remain moderate; nonetheless, net interest margin could remain compressed due to tough competition in the banking industry particularly in the residential property segment.

During 1H2018, the group’s customer deposits contracted by 0.8% y-o-y to RM295.5 billion, resulting in an increase in the loans-to-customer deposits ratio to 93.9%. The decline in customer deposits was replenished by deposits from financial institutions and investment accounts. MARC notes that the bank’s liquidity position remained sound in 1H2018 with its Basel III liquidity coverage ratio of 129.4%, exceeding the minimum requirement of 100% in 2019.

-Ends-

Contacts: Lee Kar Xuan, +603-2717 2964/ karxuan@marc.com.my 

Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my .

[This announcement is available in MARC’s corporate website at http://www.marc.com.my ]

----   DISCLAIMER    ----

This communication is provided by Malaysian Rating Corporation Berhad (“MARC”) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

© 2018 Malaysian Rating Corporation Berhad

© Press Release 2018