Published on 02 Aug 2022.
RAM Ratings has reaffirmed the AA1/Stable/P1 corporate credit ratings (CCRs) of CIMB Group Holdings Berhad (the Group) and the AAA/Stable/P1 financial institution ratings (FIRs) of CIMB Bank Berhad, CIMB Islamic Bank Berhad and CIMB Investment Bank Berhad. We have also reaffirmed ratings of the entities’ debt facilities (Table 1), while withdrawing the AA1 rating of issuances prior to 2016 under CIMB Bank’s RM10 bil Tier-2 Subordinated Debt Programme (2016/2073) following their maturity.
The one-notch differential between CIMB Group’s long-term CCR and the AAA long-term FIRs of its subsidiaries reflects the Group’s structural subordination as a non-operating holding company and its moderate debt load at the holding company level. Our rating action considers the Group’s strong franchise in ASEAN and in Malaysia as well as its healthy capital and liquidity buffers. The Group’s ratings continue to incorporate our expectation of extraordinary government support in times of need, given its systemic importance in Malaysia. With an asset base of RM632 bil as at end-March 2022, CIMB Group is the second-largest bank in the country and ranks fifth in the ASEAN region.
The Group counts Malaysia, Indonesia, Singapore and Thailand as its key markets, with overseas operations contributing about 40% of total loans on average. Foreign exposure (particularly Indonesia and Thailand) and lumpy corporate impairments have kept CIMB Group’s headline gross impaired loan ratio loftier than that of its domestic peers (end-March 2022: 3.4%). Overseas operations have weaker asset quality track records, which the Group endeavours to turn around through ongoing portfolio rebalancing and derisking efforts.
Downside risks remain on the asset quality front with around 5% of the Group’s loans still under relief as at end-April 2022 (end-January 2022: 20%). The repayment behaviour of the large proportion of borrowers who graduated from repayment assistance and resumed payments in recent months will only become evident in time. Rising inflationary pressures and slower global growth further heighten uncertainties in the current environment. We draw some comfort from the sizeable management overlays that the Group has set aside for its consumer book and several corporate accounts in the last two years, which should moderate provisioning needs for eventual impairments. Outsized provisions in 2020 and 2021 strengthened loan loss coverage (adjusted to include regulatory reserve) to 104% as at end-March 2022 from 91% as at end-December 2019.
CIMB Group expects credit costs to decline to about 60-70 bps in 2022 (2021: 73 bps; 2020: 151 bps), a level that is still elevated relative to its pre-pandemic experience. The smaller quantum of provisions and topline improvement supported a near fourfold rebound in the Group’s pre-tax profit to RM5.8 bil last year (2020: RM1.5 bil). Looking ahead, further easing of credit costs, a stronger loan growth momentum (1Q 2022: +4.9% y-o-y) and some net interest margin expansion (as monetary policy settings normalise) would be favourable to earnings this year. However, the one-off prosperity tax and the negative impact of rising interest rates on bond valuations are expected to temper this uplift to some extent.
CIMB Group’s funding and liquidity profile and capitalisation are still key rating strengths. The Group and its main banking entities maintained comfortable funding and liquidity buffers, meeting minimum Basel III liquidity coverage ratio and net stable funding ratio requirements as at end-December 2021. Its capital position stayed sound with a post-dividend common equity tier-1 (CET-1) capital ratio of 14.2% as at end-March 2022 (adjusted to include unaudited profit for 1Q FY Dec 2022; end-December 2020: 13.3%). The capital indicator was higher on account of earnings recovery last year. CIMB Group expects to maintain a minimum CET-1 capital ratio of 13.5% over the tenure of its Forward23+ strategic plan, which is supportive of future business growth.
CIMB Group Holdings Berhad
CIMB Bank Berhad
CIMB Islamic Bank Berhad
CIMB Investment Bank Berhad
Loh Kit Yoong
(603) 3385 2493
Wong Yin Ching, CFA
(603) 3385 2555
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Rating Rationale: CIMB Bank Berhad & CIMB Group Holdings Berhad
Rating Rationale: CIMB Investment Bank Berhad
Rating Rationale: CIMB Islamic Bank Berhad
Ratings on CIMB Bank Berhad