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RAM Ratings affirms CIMB Thai’s AA2 financial institution rating
Published on 18 Sep 2024.
RAM Ratings has affirmed CIMB Thai Bank Public Company Limited’s (CIMB Thai or the Bank) AA2/Stable/P1 financial institution ratings and the AA3/Stable rating of its RM2 bil Tier-2 Subordinated Debt Programme (2014/2044).
The ratings reflect our expectation of continued support from CIMB Thai’s immediate parent, CIMB Bank Berhad (rated AAA/Stable/P1), when needed given the Bank’s strategic role in CIMB Group Holdings Berhad’s (the Group) ASEAN-focused strategy.
CIMB Thai’s gross impaired loan (GIL) ratio eased to 3.0% as at end-June 2024 (end-December 2022: 3.3%) (Thai banking industry: 2.8%), but largely due to the impact of sizeable impaired loan disposals in 2Q 2024. Challenges in the Thai auto market, including a decline in used car prices and weakened borrower debt repayment ability amid a sluggish economy, have led to increased impairments in the Bank’s auto hire purchase receivables. This surge, coupled with higher management overlays, pushed CIMB Thai’s credit cost ratio to 1.4% in FY Dec 2023 and 1.1% in 1H FY Dec 2024 (annualised) (FY Dec 2022: 0.8%).
CIMB Thai’s return on assets has ranged between 0.4%-0.8% over the past five years, weighed down by its elevated cost structure. Its cost-to-income ratio stayed high at 57.8% in FY Dec 2023 (FY Dec 2022: 56.7%). In FY Dec 2023 and 1H FY Dec 2024, profitability was further squeezed by heftier provisions and notable margin compression. We expect near-term earnings upside to be limited as loan impairment charges remain lofty this year.
As at end-June 2024, CIMB Thai’s common equity tier-1 capital ratio fell slightly to 15.5% (end-December 2022: 16.2%) (industry: 16.1%) but still robust. This, combined with its strengthened loan-loss coverage, provides a strong buffer to withstand lingering asset quality pressures. As at end-June 2024, the Bank’s GIL coverage ratio stood at a higher 132.6% (end-December 2022: 113.8%).
Analytical contacts
Amy Lo
(603) 3385 2509
amy@ram.com.my
Johan Faizul
(603) 3385 2518
johan@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
© Copyright 2024 by RAM Rating Services Berhad
