Published on 28 Aug 2019.
RAM Ratings has reaffirmed CIMB Group Holdings Berhad’s (the Group) AA1/Stable/P1 corporate credit ratings (CCRs) and the issue ratings of its debt instruments. The one-notch difference between CIMB Group’s long-term CCR and the long-term AAA financial institution ratings of its Malaysian banking subsidiaries (CIMB Bank Berhad, CIMB Islamic Bank Berhad and CIMB Investment Bank Berhad) reflects its structural subordination as a non-operating holding company and its moderate holding-company debt load.
RM6.0 billion Conventional/Islamic MTN Programme (2008/2038)
RM3.0 billion Subordinated Notes Programme (2009/2074)
RM6.0 billion Conventional CP Programme (2015/2022)
RM10.0 billion Additional Tier-1 Capital Securities Programme (2016/-)
As the fifth-largest banking group in the ASEAN region (by assets), CIMB Group has a commendable universal banking franchise and a footprint in all 10 countries in the region. Following the conclusion of its four-year Target 2018 strategic plan (2015-2018), the Group has embarked on a new five-year plan (2019-2023) called Forward23 to accelerate growth and future-proof its business. Geographically, ASEAN remains CIMB Group’s focus, with Malaysia and Indonesia expected to be primary contributors to growth. Technology will feature more prominently as an enabler and significant investments have been earmarked towards this end.
CIMB Group’s gross impaired loan (GIL) ratio eased from 3.4% to 2.9% in 2018 before inching up to 3.0% in 1Q 2019. This indicator pales in comparison to that of domestic peers, given the higher credit risk environment in Indonesia and Thailand. Nonetheless, impairment charges in these two markets have tapered off from a high base, thereby improving the Group’s credit cost ratio to 43 bps in fiscal 2018 (fiscal 2017: 69 bps) and an annualised 34 bps in 1Q fiscal 2019. As at end-March 2019, the Group’s GIL coverage ratio (inclusive of regulatory reserves) was a sound 103%. Looking ahead, the tougher economic climate could lead to a handful of borrower-specific issues, although we do not expect widespread deterioration in any portfolio.
Excluding all disposal gains, CIMB Group’s core pre-tax profit was largely unchanged y-o-y at RM6.1 bil in fiscal 2018 and RM1.6 bil in 1Q fiscal 2019. This is attributed to lower impairment charges that offset revenue pressure (fiscal 2018) and incremental costs related to Forward23 (1Q fiscal 2019). Core pre-tax return on assets for both periods was 1.2%. As Forward23 entails substantial investments that will be frontloaded in 2019 and 2020, the Group’s core profitability is likely to hover around the current level until an expected revenue uplift is seen in subsequent years.
CIMB Group is primarily funded by deposits, which are supplemented by wholesale funding that is diversified in terms of currency and instrument. As at end-March 2019, the Group’s loans-to-funds and loans-to-deposits ratios stood at a respective 82% and 91%. The liquidity coverage ratios of its key banking subsidiaries are comfortably above the requirement of 100% while their net stable funding ratios have exceeded the minimum of 100%.
CIMB Group’s common equity tier-1 capital ratio (with reinvested dividends and unaudited profit in 1Q fiscal 2019) had further strengthened y-o-y from 11.7% to 12.8% as at end-March 2019, supported by a well-received dividend reinvestment scheme. The Group’s capital position is amply above the regulatory requirement even after considering the additional buffer that it may need to maintain under the framework for domestic systemically important bank. At the holding company level, its double-leverage and gearing ratios were 1.10 times and 0.16 times, respectively, as at the same date.
Lim Yu Cheng, CFA, FRM
(603) 3385 2492
(603) 3385 2577
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Ratings on CIMB Group Holdings Berhad