Published on 22 Oct 2020.
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 development agenda. BPMB is a key government conduit that addresses funding gaps in sectors under its mandate, i.e. infrastructure, technology, maritime, and oil and gas (O&G). In line with its new strategic plan, BPMB will gradually expand the provision of financing beyond the current four focus sectors and emphasise on maximising its socio-economic impact on the country.
The GoM’s strong support for BPMB’s operations in the past has been demonstrated through a capital injection, the provision of funds to compensate for losses and profit rate differentials on financing for government infrastructure projects. The GoM has also provided interest subsidies for dedicated fund schemes and extended guarantees on the Group’s borrowings.
As with other DFIs, BPMB may take on higher-risk credits when extending financing to strategic priority sectors given its developmental mandate. A significant proportion of the Group’s financing book is made up of lending for large-scale and long-term development projects, which exposes it to a high degree of borrower concentration risk. BPMB’s gross impaired financing (GIF) ratio rose to 12.1% as at end-June 2020 (end-December 2018: 11.0%). However, this was primarily due to a sizeable contraction in its financing base attributable to large repayments. Notably, absolute GIF had decreased during the period.
BPMB’s pre-tax profit jumped 46% y-o-y to RM379.7 mil in fiscal 2019 mainly due to substantially lower impairment charges and gains on disposal of investment securities. Pre-tax profit came in lower in 1H fiscal 2020 on account of a shrinking financing base and a spike in forward-looking impairment charges amid a highly challenging operating environment caused by the Covid-19 pandemic. BPMB’s profit performance is still sensitive to big-ticket impairment expenses in view of its financing profile, exacerbated by the gloomy economic outlook. On balance, the Group’s loss absorption buffers stood healthy, with its gross impaired financing coverage ratio and tier-1 capital ratio at a respective 120% and 33% as at end-June 2020.
Meanwhile, the proposed two-stage restructuring of four DFIs including BPMB, which was unveiled in October 2019, has been deferred indefinitely. This is to allow the entities to focus on helping borrowers navigate the current crisis.
Jeremy Noel Paul
(603) 3385 2556
(603) 3385 2577
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Ratings on Bank Pembangunan Malaysia Berhad