Posted Date: September 09, 2022

MARC Ratings has affirmed its financial institution (FI) rating of AAA on Bank Pembangunan Malaysia Berhad (BPMB). Concurrently, the rating agency has affirmed its rating of AAAIS on the bank's Islamic Medium Term-Notes Programme of up to RM5.0 billion. The ratings outlook is stable.

BPMB's status as a wholly government-owned institution mandated to provide financing to priority sectors in support of the government's development goals remains the key rating driver. In executing its role, BPMB has received strong support from the government by way of guarantees on the development financial institution's (DFI) borrowings as well as grants to cover credit losses on infrastructure financing and compensation for losses of problematic loans/financing.

In November 2021, BPMB acquired 100% of Danajamin Nasional Berhad (Danajamin) under the first phase of the proposed merger of DFIs in the country. We note that the amalgamation of Danajamin with BPMB is expected to be completed in 4Q2022, following which the business and undertakings of Danajamin would be transferred and vested into BPMB. MARC Ratings does not envisage any dilution in BPMB's mandated role as a result of the amalgamation exercise and views positively that BPMB will execute Danajamin's commitments and undertakings.

Following the acquisition, BPMB's total asset book grew by 11.1% y-o-y to RM26.1 billion as at end-2021. Its financing portfolio, however, grew organically by 4.4% y-o-y to RM19.6 billion following the resumption of economic activities over the same period. The DFI's continued accommodative relief measures coupled with financing portfolio expansion led to a fall in its gross impaired financing ratio to 10.5% as at end-2021 (end-2020: 11.3%). About 38.3% of its financing book remains under relief measures. While some of these may become delinquent as the measures expire, the bank has been able to address this risk by building buffers over the last two years. Financing loss coverage ratio stood high at 169.3% as at end-2021 (end-2020: 149.0%).

Profit performance improved in 2021 mainly due to lower impairment and modification charges with pre-tax profit higher at RM254.4 million (2020: RM157.5 million). The DFI has also maintained healthy capitalisation levels over the same period with core capital and risk-weighted capital ratios at 33.8% and 35.8%, which would provide ample headroom against potential losses.

Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my
Farhan Darham, +603-2717 2945/ farhan@marc.com.my
Yazmin Abdul Aziz, +603-2717 2948/ yazmin@marc.com.my

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