MARC Ratings has affirmed its long- and short-term financial institution ratings of AA+/MARC-1 on China Construction Bank (Malaysia) Berhad (CCBM) with a stable outlook.

CCBM’s healthy metrics as reflected by high provisioning levels, strong capital ratios, as well as healthy liquidity and funding positions remain key rating drivers. CCBM’s long-term rating of AA+ is notched down from its parent China Construction Bank Corporation’s (CCB) AAA rating. CCBM’s rating of AA+ is in line with our rating approach which views the bank as a strategic entity of its parent. The notching approach also considers CCB’s explicit intent of support extended to CCBM, its 100% ownership in CCBM and the significant operational linkages between them.

CCBM’s total capitalisation of 60.0% as at end-9M2021 remains very strong, bolstered by the US$200 million subordinated loan undertaken in 2019. For 9M2021, gross loans declined by 27.7% y-o-y to RM2.0 billion. Its loan growth is expected to resume in 2022 as pandemic concerns ease substantially and borders reopen.

CCBM continues to support China-based companies including those undertaking construction and infrastructure projects under China’s Belt and Road Initiative. Stemming from this strategy, the bank’s loans tend to be sizeable and granted to large corporations; its top five borrowers accounted for 46.9% of total loans outstanding as at end-9M2021. CCBM’s asset quality remains strong without any impairment since beginning operations; however, given its large loan exposures, any asset quality weakness could lead to a large spike in impairments. This risk is largely mitigated by monitoring and controls that are in place including support within the CCB group.

For 9M2021, pre-tax profit improved to RM60.3 million, largely owing to write-back of allowance. Its cost-to-income ratio remained stable at 50.5% during the period. Pre-provision profit, however, declined 11.9% y-o-y to RM44.0 million on the back of a smaller loan book. Basel III liquidity coverage ratio and net stable funding ratio stood at 294.3% and 218.5% as at end-2021 (2020: 195.9%; 129.9%), exceeding the minimum regulatory requirements.