RAM Ratings reaffirms Bank Pembangunan’s AAA ratings

Published on 17 Dec 2021.

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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 anchored on our expectation of continued support from the Government of Malaysia, given the Group’s status as a wholly government-owned development financial institution (DFI) and its strategic role in the country’s development agenda. Since 2020, the Group has gradually become sector agnostic, evolving beyond providing financing to its traditional customer sectors of infrastructure, technology, maritime, and oil and gas. Aligning its focus with the government’s initiatives, BPMB heavily emphasises sustainable financing that promotes a greater socio-economic impact for the country.  

The government has demonstrated strong support for BPMB’s operations in the past through a capital injection, the provision of grants to cover credit losses on infrastructure financing, cost of fund compensation and profit subsidies for dedicated schemes. The government has also extended guarantees on some of the Group’s borrowings.

As with other DFIs, BPMB may take on higher-risk credits in extending financing to strategic priority sectors in view of its developmental mandate. A large proportion of the Group’s financing book constitutes lending to large-scale and long-term development projects, which exposes it to a high degree of customer concentration risk. BPMB’s gross impaired financing ratio improved to 10.8% as at end-June 2021 (end-December 2019: 12.2%) on the back of a larger financing base, writeoffs and partial settlements of impaired financing. Asset quality is however still weak due to its public policy role. 

Owing to hefty impairment charges, pre-tax profit fell to RM157.5 mil in FY Dec 2020 (FY Dec 2019: RM379.7 mil). The impairment expense – mainly for Stage 1 and 2 financing – slashed pre-provision earnings by 81%. As a result, BPMB’s return on risk-weighted assets (RoRWA) more than halved to 0.7% (FY Dec 2019: 1.6%). In 1H FY Dec 2021, RoRWA rebounded to an annualised 2.9% on account of lower impairment charges. BPMB’s profit performance remains sensitive to big-ticket impairment expenses in view of its financing profile, exacerbated by the still challenging economic environment. The Group’s loss absorption buffers stayed healthy, with its gross impaired financing coverage ratio and bank-level tier-1 capital ratio clocking in at a respective 152% and 36% as at end-June 2021.  

BPMB’s recent acquisition of Danajamin Nasional Berhad (rated AAA/Stable/P1 by RAM) – the national financial guarantee insurer – will not affect the Group’s ratings. The enlarged entity is envisaged to have a greater market impact, solidifying the Group’s strategic importance to the government.

Analytical contacts
Jeremy Noel Paul 
03 3385 2556

Wong Yin Ching, CFA
03 3385 2555

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
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