Published on 28 Aug 2019.
RAM Ratings has reaffirmed CIMB Islamic Bank Berhad’s (the Bank) AAA/Stable/P1 financial institution ratings and the AAA/Stable rating of the Bank’s RM10.0 billion Sukuk Wakalah Programme (2017/-). The ratings are premised on CIMB Islamic’s strategic role as the Islamic banking arm of CIMB Group Holdings Berhad (the Group). Operating on a universal banking platform, CIMB Islamic leverages significantly on the back-room operations, risk management systems, treasury operations and distributions channels of its immediate parent – CIMB Bank Berhad (rated AAA/Stable/P1). We expect the Bank to continue to benefit from ready group support if needed.
CIMB Islamic’s accelerated financing growth remained underpinned by the Group’s Islamic First strategy, having peaked at 23% in FY Dec 2018 before easing to 16% y-o-y in 1Q FY Dec 2019, partly owing to lumpy repayments. The Bank’s asset quality stayed healthy even though its financing portfolio is relatively unseasoned, given rapid growth over the years (three-year CAGR of 21% between 2016 and 2018). In 1Q FY Dec 2019, the Bank’s gross impaired financing (GIF) ratio inched up to 0.84% (end-December 2018: 0.62%; end-December 2017: 0.66%), mainly due to a couple of corporate accounts. Looking ahead, the tougher economic climate could lead to customer-specific issues, although we do not expect widespread deterioration in any portfolio. Amid a larger GIF accretion, the Bank’s credit cost ratio inched up to an annualised 24 bps in 1Q FY Dec 2019 (FY Dec 2018: 17 bps; FY Dec 2017: 16 bps), albeit still benign. Its GIF coverage remained strong at 163% as at end-March 2019, inclusive of regulatory reserves and expected credit losses relating to restricted profit-sharing investment accounts.
On the back of strong financing growth, CIMB Islamic’s pre-tax profit rose 27% y-o-y to RM1.0 bil in FY Dec 2018. While the Bank is largely deposit-funded, it is exposed to some depositor concentration risk. That said, we expect liquidity support from its parent to be readily extended if required. The Bank’s net stable funding ratio and liquidity coverage ratio stand above 100%. CIMB Islamic’s capitalisation stayed sound, with its common-equity tier-1 capital ratio clocking in at 12.9% as at end-March 2019 after incorporating unaudited net profit from 1Q FY Dec 2019.
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Ratings on CIMB Islamic Bank Berhad