MARC Ratings has affirmed its financial institution rating of AAA on Bank Pembangunan Malaysia Berhad (BPMB) and the AAAIS rating on the bank’s Islamic Medium-Term Notes (IMTN) Programme. The IMTN Programme will be upsized to RM11.0 billion from the existing RM5.0 billion limit to support BPMB’s funding requirements as well as refinance its existing sukuk. The outlook on both ratings is stable.
The ratings reflect MARC Ratings’ expectation of a very high probability of government support to BPMB, if needed. This takes into consideration BPMB’s status as a policy bank fully owned by the government, its important role in supporting the country’s infrastructure development, and the government support it has received in the past; the bank has received government guarantees on certain borrowings for government-related projects and grants to cover credit losses on some problematic loans/financings.
Given BPMB’s role as the country’s infrastructure financing bank, its financing book of RM20.3 billion as at end-June 2024 is skewed towards financing to the infrastructure sector, at around 93% of total financing – mainly for road or highway financing. About 78% of the infrastructure financing pertained to government-related projects, which carried some form of government support. BPMB had also issued bank guarantees amounting to RM3.6 billion as of end-1H2024; MARC Ratings understands that there have been no calls on the corporate guarantees to date.
BPMB’s high gross impaired financing ratio of 11.0% as at end-June 2024 reflects the higher-risk credits the bank generally underwrites as a development financial institution (DFI). Asset quality could remain weak, with potential risks reflected in the still high level of financing under the restructure and reschedule programme (39%). However, sufficient capitalisation, with a core capital ratio of 29.9% and a risk-weighted capital ratio of 34.6% as at end-1H2024, provides adequate loss absorption buffers. The financing loss provision of 179.1% as at end-June 2024 also provides adequate risk cushion, in the rating agency’s view.
Wholesale funding sources accounted for 58% of total funding as at end-June 2024. Nevertheless, around 40% of customer deposits were from the government and statutory bodies, which the rating agency expects to be stable. BPMB’s liquidity coverage ratio and net stable funding ratio have been comfortably above regulatory requirements at 468.6% and 123.9%, mitigating liquidity and funding risks.
The bank recorded strong profitability in 1H2024, with pre-tax profit of RM420.2 million, up by approximately 90% y-o-y. The robust overall profitability was boosted by higher write-backs of RM104.3 million, coupled with a 17.8% y-o-y increase in net financing income to RM384.6 million supported by a broader net financing margin of 2.67% (1H2023: 2.65%).
MARC Ratings notes that the proposed merger between BPMB, Small Medium Enterprise Development Bank Malaysia Berhad and Export-Import Bank of Malaysia Berhad is still in progress. The rating agency believes BPMB will maintain its developmental mandate and continue to receive strong government support, thus envisages the merger to have no material impact on the DFI’s support-driven rating.