Posted Date: July 29, 2021

MARC has affirmed its financial institution (FI) ratings of AAA/MARC-1 with a stable outlook on CIMB Bank Berhad. Concurrently, the rating agency has affirmed its ratings on the bank's existing subordinated debt programmes 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 high systemic importance in the domestic banking industry as the second-largest domestic bank by asset size remains a key factor for the FI ratings. The bank accounted for a sizeable 17.0% of total loans and 18.4% of total deposits of the domestic banking industry as at end-1Q2021. Its assets grew by 3.2% y-o-y to RM523.4 billion as at end-1Q2021 and remains the fifth-largest banking group by asset size in ASEAN. CIMB Bank is more geographically diversified than most of its peers but will move out from some segments in weaker operating markets in the region. This would potentially increase the proportion of its domestic loan book size, which stood at 72.3% of total loans of RM313.7 billion as at end-2020 followed by Thailand at 10.8% and Singapore at 9.4%.

CIMB Bank's performance has been sharply impacted by the pandemic crisis that had necessitated a sizeable provision of RM5.2 billion to be made and one-off modification losses as pre-emptive measures in 2020. This led to a sharp decline in pre-tax profit to RM1.0 billion in that year; profitability has since rebounded to RM1.4 billion in 1Q2021 compared to RM451.4 million in the corresponding period last year, with improvement due to lower impairment charges. Gross impaired loans ratio stood at 2.56%, higher than the industry average of 1.57% and had been contributed by a sizeable impairment on an oil and gas–related account in Singapore.

Over the near term, domestic loan growth is expected to remain subdued given the slower-than-expected pace of easing of pandemic-induced restrictions while the weak economic conditions may prompt further assistance from the domestic banks. These conditions which have played out in the region to varying degrees coupled with the bank's strategy on its foreign subsidiaries following recent losses will weigh on its overseas loan growth going forward. For 1Q2021, consolidated loans grew marginally by 1.3% y-o-y to RM314.4 million. Net interest margin remained flat at 2.16%. Management remains focused on the cost optimisation plan under its Forward 23+ strategy that has led to an improving trend in the bank's cost-to-income ratio, falling to 48.1% in 1Q2021 from 56.5% in 1Q2020.

CIMB Bank's Common Equity Tier 1 and total capital ratios of 13.6% and 18.6% provide some buffer against further asset quality weakness. Its liquidity coverage ratio and net stable funding ratio are well above the required level.

Farhan Darham, +603-2717 2945/ farhan@marc.com.my;
Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my;
Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my.