Published on 28 Aug 2019.
RAM Ratings has reaffirmed CIMB Bank Berhad’s (the Bank) AAA/Stable/P1 financial institution ratings (FIRs) and the issue ratings of its debt instruments. The FIRs incorporate the Bank’s strong universal banking franchise, sound credit metrics and systemic importance to the Malaysian banking system. CIMB Bank stands among the three largest lenders domestically and is part of CIMB Group Holdings Berhad – the fifth-largest banking group in the ASEAN region by assets.
RM10 billion Tier-2 Subordinated Debt Programme (2013/2073):
RM10 billion Additional Tier-1 Capital Securities Programme (2016/-)
RM20 billion MTNs Programme (2017/-)
Following the conclusion of its four-year Target 2018 strategic plan (2015-2018), CIMB Group has embarked on a new five-year plan (2019-2023) called Forward23 to accelerate growth and future-proof its business. The Group plans to capture further market share in Malaysia by growing at 1.5 times the market rate. Expansion in Malaysia will be underpinned by the consumer and SME segments. Technology will feature more prominently as an enabler and significant investments have been earmarked for this purpose.
CIMB Bank’s gross impaired loan (GIL) ratio had eased to 2.2% as at end-March 2019 (end-December 2017: 2.3%) due to a larger loan base. This ratio pales in comparison to that of domestic peers, given the higher credit risk environment in Thailand vis-à-vis Malaysia. Nonetheless, absolute GILs had reduced in Thailand in 2018 due to bad-debt disposal while having inched up in Malaysia since 2018 amid sporadic issues. Even though GILs could creep up further owing to episodic factors in a challenging environment, we do not foresee pervasive weakness in any portfolio. As impairment charges in Thailand tapered off from a high base, CIMB Bank’s credit cost ratio stayed below 30 bps in fiscal 2018 and 1Q fiscal 2019 (fiscal 2017: 44 bps). Its GIL coverage ratio (inclusive of regulatory reserves) was a comfortable 102% as at end-March 2019.
Despite flattish revenue, CIMB Bank’s pre-tax profit climbed 3% to RM5.1 bil in fiscal 2018 as a sharp decline in impairment charges (-30%) offset higher expenses (+5%). Its pre-tax return on risk-weighted assets remained largely unchanged at a satisfactory 2.2%. In 1Q fiscal 2019, the Bank’s pre-tax profit slipped 4% y-o-y to RM1.3 bil as Forward23-related expenses kicked in. As Forward23 entails investments that will be frontloaded in 2019 and 2020, the Bank’s profitability is likely to hover around the current level until the expected revenue uplift is seen in subsequent years.
CIMB Bank 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 Bank’s loans-to-funds and loans-to-deposits ratios stood at a respective 80% and 89%. Its unconsolidated liquidity coverage ratio was a sound 147% as at the same date while the required net stable funding ratio of 100% had been met.
CIMB Bank’s common equity tier-1 (CET-1) capital ratio had further strengthened y-o-y from 11.5% to 12.6% as at end-March 2019. The Bank’s capitalisation is centrally managed by CIMB Group, which has a well-received dividend reinvestment scheme that supports group-wide capital management. Surplus cash dividends at the holding company level are reinvested in CIMB Bank. The Bank’s pro forma CET-1 capital ratio is estimated to be 13.2% as at the same date after incorporating the reinvestment of surplus cash dividends and unaudited profit in 1Q fiscal 2019.
Lim Yu Cheng, CFA, FRM
(603) 3385 2492
(603) 3385 2577
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Ratings on CIMB Bank Berhad