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RAM Ratings reaffirms Bank Pembangunan’s AAA ratings
Published on 12 Sep 2022.
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 its 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, 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, BPMB has gradually expanded its provision of financing beyond the traditional customer sectors of infrastructure, technology, maritime services, and oil and gas, emphasising sustainable financing that promotes a greater socio-economic impact.
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 funds compensation and profit subsidies for dedicated schemes. Some of the Group’s borrowings are covered by government guarantees.
In November 2021, BPMB acquired 100% of Danajamin Nasional Berhad (Danajamin or the Company, rated AAA/Stable/P1 by RAM) – the national financial guarantee insurer – as part of a government-led DFI restructuring exercise. The two entities have since initiated an amalgamation exercise via a business transfer scheme where Danajamin’s assets and liabilities, including its financial guaranteed portfolio but excluding the Company’s sukuk and cash set aside for repayment, will be transferred to BPMB. Expected to be completed in 4Q 2022, the exercise will not affect BPMB’s ratings.
Like other DFIs, BPMB may take on higher-risk credits in extending financing to strategic priority sectors in view of its developmental mandate. A sizeable proportion of the Group’s financing book comprises lending to large-scale and long-term development projects, which exposes it to a high degree of customer concentration risk. Although still elevated, BPMB’s gross impaired financing ratio improved to 10.5% as at end-December 2021 (end-December 2020: 11.3%) because of a larger financing base, writeoffs and the reclassification of financing as performing. The consolidation of Danajamin’s financial guarantee portfolio is not anticipated to significantly alter the Group’s overall asset quality profile.
In FY Dec 2021, pre-tax profit rose 61% y-o-y to RM254.4 mil (FY Dec 2020: RM157.5 mil), mainly owing to lower impairment charges. This translated into a higher return on risk-weighted assets of 1.1% (FY Dec 2020: 0.7%). The acquisition of Danajamin will have a positive impact on BPMB’s earnings profile, but we are cognisant that the Group remains sensitive to big-ticket impairment expenses in view of its financing portfolio. BPMB’s loss absorption buffers stayed healthy, with its adjusted gross impaired financing coverage ratio (including infrastructure support fund) and bank-level tier-1 capital ratio at a respective 184% and 38% as at end-December 2021.
Analytical contacts
Jeremy Noel Paul
03 3385 2556
jeremynp@ram.com.my
Wong Yin Ching, CFA
03 3385 2555
yinching@ram.com.my
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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