MARC Ratings has affirmed its AA+/MARC-1 financial institution (FI) ratings on China Construction Bank (Malaysia) Berhad (CCBM) with a stable outlook.
The long-term FI rating of AA+ is notched down from the AAA FI rating of its parent, China Construction Bank Corporation (CCB). The one-notch rating differential is in line with MARC Ratings’ notching criteria that considers CCBM as a strategically important subsidiary of CCB. The latter has also given its explicit intent to support and maintain its 100% ownership in CCBM.
CCBM’s ratings reflect MARC Ratings’ expectation of high shareholder support from CCB given the parent’s full ownership and strong oversight with key management appointments. CCBM’s business strategy is closely aligned with that of the parent, as the group focuses on its core mandate to support cross-border trading for key projects related to the Belt and Road Initiative, as well as Chinese businesses operating in Malaysia. While China currently faces economic headwinds particularly from the slump in its real estate sector, the rating agency believes the Chinese government has a high propensity and ability to extend support to CCB, the world’s third-largest banking group by asset size, considering CCB’s systemic importance to China’s banking system.
Domestically, CCBM’s loan book grew 2.6x to RM3.1 billion in 2023, driven by loans related to the East Coast Rail Link project. The bank’s total capital ratio of 54.1% as at end-2023 indicates healthy headroom to support lending. On asset quality, no impairments have been recorded. CCBM is exposed to loan and customer concentration risk; its top five borrowers made up close to 62% of CCBM’s total loans as at end-2023. MARC Ratings views concentration risk to be partly mitigated by the monitoring mechanism in place within the CCB group.
Pre-tax profit improved to RM39.8 million in 2023 (2022: RM19.3 million), as higher non-operating interest income of RM88.6 million more than offset the decline in net interest income. Meanwhile, the bank’s Basel III liquidity coverage ratio and net stable funding ratio stood at 211.8% and 131.8% as at end-2023, exceeding the minimum regulatory requirements.