Published on 29 Nov 2019.
RAM Ratings has reaffirmed Bank Pembangunan Malaysia Berhad’s (BPMB or the Group) AAA/Stable/P1 financial institution ratings, alongside the AAA/Stable rating of the Group’s RM7 billion Conventional MTN and/or Islamic Murabahah MTN Programmes (2006/2036).
The ratings are premised on our expectation of continued support from the Government of Malaysia (GoM), given the Group’s status as a wholly government-owned development financial institution (DFI) and its strategic role in the country’s socio-economic agenda. BPMB is the GoM’s key conduit in the provision of financing to sectors under its mandate, i.e. infrastructure, technology, maritime, and oil and gas (O&G). The GoM has demonstrated strong support for BPMB’s operations in the past through a capital injection, the provision of funds to compensate for losses and profit rate differentials on financing given for government infrastructure projects, the interest subsidies on dedicated fund scheme and the extension of guarantees on the Group’s borrowings.
The recently unveiled Budget 2020 discloses plans for a two-stage restructuring of four DFIs involving the consolidation of BPMB, Danajamin Nasional Berhad (rated AAA/Stable/P1), Export-Import Bank of Malaysia Berhad (rated AAA/Stable/P1) and the Small & Medium Enterprise Development Bank Malaysia Berhad. With a larger market impact, the merged DFI’s strategic importance is expected to remain well preserved. The merged DFI’s credit profile and the ratings of debts that may be transferred will continue to benefit from a strong likelihood of government support. While the details remain vague at this juncture, intricacies unique to this proposed corporate exercise include the amalgamation of the entities’ public policy roles and the scope of the enlarged DFI. The integration of resources, cultures and systems are critical to a merger of this scale.
In view of its developmental mandate, BPMB typically takes on higher-risk credits that are not usually undertaken by commercial banks. A substantial proportion of the Group’s loan book comprises lending to large-scale development projects, which gives rise to a high degree of borrower concentration risk. BPMB’s asset quality metrics remained weak as at end-June 2019, with its gross impaired loan ratio standing at 12.2%, mainly attributable to the Group’s O&G and infrastructure (tourism) portfolios.
BPMB’s pre-tax profit dwindled to RM260.7 mil in fiscal 2018 (-19% y-o-y) following heftier credit impairment charges. Net interest income was also lower in tandem with the contraction in the Group’s loan book. In 1H fiscal 2019, BPMB recorded a pre-tax profit of RM281.7 mil. Although the deconsolidation of a former shipping subsidiary has relieved BPMB of vessel impairment charges that had plagued its earnings in previous years, the Group’s performance remains sensitive to big-ticket impairment expenses in view of its loan profile. On a positive note, the Group’s healthy capitalisation, with a total capital ratio of 36.7% (Basel I) as at end June 2019 provides an adequate buffer against potential credit losses.
Goh Kwan Kheen, Timothy
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Ratings on Bank Pembangunan Malaysia Berhad