Posted Date: August 25, 2020

MARC has affirmed its financial institution (FI) ratings on CIMB Bank Berhad at AAA/MARC-1/Stable. Concurrently, the ratings on the bank's existing subordinated debt programmes have been affirmed. These ratings have been notched down from the bank's long-term FI rating based on their relative loss severity risk profiles. The subordinated debt programmes are 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

CIMB Bank's FI ratings incorporate its high systemic importance in the domestic banking industry as is evident from the designation of its parent CIMB Group Holdings Berhad as a domestic systemically important bank (D-SIB) in February 2020 by Bank Negara Malaysia (BNM). CIMB Bank remains the core operating entity of its parent and the second-largest domestic bank by asset size. It has a well-established banking franchise with an extensive network of 234 domestic branches and a growing presence in the ASEAN region. Its strong domestic market position is reflected in a 17.1% and 17.3% share of total domestic loans and deposits as at end-March 2020.

MARC views the significant impact from the COVID-19 pandemic on global and domestic economies will weigh on the banking sector though the severity is being mitigated by measures implemented by BNM. In the near term, CIMB Bank's strong capital and liquidity position will provide a buffer against the potentially higher credit impairments arising from the economic crisis. Over the longer term, the impact on CIMB Bank's asset quality will hinge largely on the success of the measures taken to shore up consumer and business confidence, and the timing of the economic recovery.

CIMB Bank's consolidated Common Equity Tier 1 (CET1) and total capital ratios stood at 12.2% and 16.7% as at end-March 2020, well above the minimum regulatory requirements. Its capital has been, and is expected to continue to be, supported by the dividend reinvestment scheme (DRS). Liquidity is sufficient to weather the six-month loan moratorium period; its liquidity coverage ratio (LCR) stood at 138% as at end-March 2020. Over the longer term, the central bank's accommodative stance to allow banks to operate below the 100% LCR threshold and its reduction of regulatory reserves, among other liquidity-enhancing measures, will ease pressure on the bank's liquidity in the event of any extension on the moratorium.

CIMB Bank's overall asset quality has weakened, with the gross impaired loans (GIL) ratio rising to 2.67% (industry average: 1.59%) at end-1Q2020, even before the impact from the pandemic was felt. This spike was largely contributed by the impairment on an oil and gas-related account in its Singapore branch; another sizeable impairment is expected in the same sector in the near term. Coupled with the current challenging economic conditions, CIMB Bank's asset quality metrics are likely to remain under pressure in the foreseeable future. Its loan loss coverage including regulatory reserves reduced to 65.4% in 1Q2020 from 91.8% in 2019.

Against this backdrop, MARC expects the bank's loan growth to be in the low single digits for full year 2020; in 1Q2020 it registered loan growth of 5.6% y-o-y, driven by its domestic market, which grew 5.1% y-o-y, Thailand (8.7%) and Singapore (7.7%). CIMB Bank reported lower pre-tax profit of RM451.0 million (1Q2019: RM1.3 billion), mainly due to higher provisions made on an impaired loan in Singapore as well as on its domestic loans in anticipation of an increase in impairments. The recent interest rate cuts will further compress margins, while earnings will be weighed down by additional expenses on the waiver of additional interest on hire purchase loans during the deferment period.

Raj Shankar, +603-2717 2956, rajshankar@marc.com.my;
Farhan Darham, +603-2717 2945, farhan@marc.com.my;
Mohd Izazee Ismail, +603-2717 2947, izazee@marc.com.my

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