CHINA CONSTRUCTION BANK (MALAYSIA) BERHAD - 2023 |
||||||||
| Report ID | 60538900469484 | Popularity | 274 views 28 downloads | |||||
| Report Date | Jul 2023 | Product | ||||||
| Company / Issuer | China Construction Bank (Malaysia) Bhd | Sector | Finance - Financial Institution | |||||
| Price (RM) |
|
|||||||
| Rationale |
Rating action MARC Ratings has affirmed its long- and short-term financial institution (FI) ratings of AA+/MARC-1 on China Construction Bank (Malaysia) Berhad (CCBM). The ratings outlook is stable. Rationale The long-term FI rating of AA+ is notched down from the FI rating of its parent CCB of AAA, which MARC Ratings has based on publicly available information. The one-notch long-term rating differential is in line with the rating approach that views CCBM as a strategic entity of its parent which, in addition to the significant operational linkages between them, has also extended an explicit intent of support to CCBM and maintains 100% ownership of the subsidiary. The AAA FI rating of CCB reflects its shareholding structure as a majority-owned financial entity of the Chinese government and its status as a global systemically important bank (G-SIB) given its significant market share of loans (9.7%) and deposits (9.5%) in the Chinese banking industry. CCB remains the world’s second-largest bank by assets which stood at RMB34.3 trillion as at end-9M2022. Since commencing operations, CCB’s loan growth was constrained, partly due to the impact of the COVID-19 pandemic that has weighed on the rollout of projects under the Belt and Road Initiative (BRI) and the challenging economic conditions. For 9M2022, gross loans stood at RM1.3 billion, declining from RM1.6 billion in the prior year. Loan growth is expected to be spurred by the resumption of economic activities from the uplift of pandemic restrictions and the renewed focus on business opportunities between Malaysia and China. CCBM is expected to continue to support environmental, social and governance (ESG)-related projects. We view the high capitalisation level of 67.1% as at end-9M2022 would provide significant capacity for future growth. CCBM is exposed to large construction and infrastructure projects including those under China’s BRI with its top five borrowers accounting for 54.7% of total loans outstanding as at end-9M2022. While asset quality metrics remain strong without any impairment since beginning operations, impairments could spike if asset quality issues occur in its large loans. This risk is mitigated by a monitoring mechanism that is in place within the CCB group. Concomitant with the slower-than-expected loan growth, investments in securities such as bonds and money market instruments grew sharply, accounting for 45.7% of total assets of RM6.1 billion (2021: 34.2%). Its investments are mainly in highly liquid and high credit quality instruments such as government and government-related securities. The majority of these are short-term in nature (less than a year) and therefore less susceptible to the impact of interest rate movement. In 9M2022, CCBM’s investment portfolio recorded a modest mark-to-market loss due to increases in policy rates during the year. Net interest income stood lower at RM60.0 million (9M2021: RM62.3 million) on higher interest expense. It incurred a net forex loss during the period. This contributed to lower pre-tax profit of RM17.3 million. Going forward, its earnings are expected to improve on the back of a larger loan base growth. Basel III liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) stood at 301.4% and 230.4% as at end-9M2022 (9M2021: 218.9%; 178.9%), exceeding the minimum regulatory requirements. Rating outlook The stable rating outlook assumes continued support from CCB to CCBM and the parent’s financial profile remains strong along with CCBM’s healthy capitalisation. Rating trajectory Downside scenario The rating would face downward pressure if there is evidence of an explicit decline in CCB’s capacity and willingness to support CCBM or if the parent’s performance weakens substantially and/or CCBM’s key metrics deviate from expectation. Key strengths
Key challenges
|
|||||||
| Related | ||||||||
