MARC Ratings has affirmed CIMB Islamic Bank Berhad’s (CIMB Islamic) financial institution (FI) ratings of AAA/MARC-1/Stable. Concurrently, the rating agency has also affirmed its ratings on CIMB Islamic’s sukuk issuances as follows:

The rating on the Tier 2 Junior Sukuk Programme reflects its subordination to the Senior Sukuk Wakalah Programme.

CIMB Islamic’s FI and Senior Sukuk Wakalah ratings are equalised to that of parent CIMB Bank Berhad (AAA/Stable). CIMB Islamic is the Islamic financing arm and core subsidiary of the parent. With total assets of RM143.2 billion, CIMB Islamic is one of the largest Islamic banks in the country, with a 13.4% market share by asset size at end-2022.

CIMB Islamic has continued to record significantly higher financing growth of 18.8% y-o-y to RM109.1 billion in 2022 compared to the industry average of 12.4% y-o-y. The growth was driven by the residential property financing segment which expanded by 20.2% y-o-y to RM40.6 billion in 2022. Its other key segments, namely working capital, vehicle financing and non-residential property grew strongly by 39.1%, 18.9% and 26.7%. Its financing growth is expected to taper in 2023 on the back of the higher interest rate environment. This is expected to affect consumer financing where CIMB Islamic has performed strongly in recent years; its residential property financing accounted for 37.2% of the bank’s total financing while working capital, vehicle financing and non-residential property accounted for 18.1%, 14.4% and 10.0%.

Gross impaired financing (GIF) ratio increased to 1.29% as at end-2022 (2021: 0.70%) as impairments rose in part due to the expiry of relief measures which now stood at around 1% of gross financing from 10% as at end-2021. Its financing loss coverage of 105.6% provides some buffer against any increase in asset quality weakness in the near term. CIMB Islamic’s Common Tier 1 (CET1), Tier 1 capital and total capital ratios stood at 14.0%, 14.7% and 17.1% as at end-2022. The bank’s capital position benefits from a restricted profit-sharing investment account (RPSIA) mechanism with CIMB Bank. 

CIMB Islamic recorded stronger profitability metrics in 2022 on the back of a larger financing book, broader net financing margin (NFM) and lower provisioning expenses due to write-back. NFM remained stable at 2.04% during the period but would come under pressure as competition for deposits increase. Pre-tax profit grew by 28.2% y-o-y to RM1.5 billion while return on assets (ROA) and equity (ROE) were at 0.75% and 12.19%. For 1Q2023, pre-tax profit was lower at RM267.9 million (1Q2022: RM410.3 million) while NFM narrowed to 1.59%. 

Customer deposits continued to constitute the bulk of CIMB Islamic’s funding at 80.0% as at end-2022. Its proportion of current and savings account (CASA) deposits declined to 23.6% (industry average: 31.3%). While the bank’s top 10 depositors accounted for 37.1% which poses some deposit concentration risk, these are largely made up of government-related entities which make the deposits stickier. Liquidity coverage and net stable funding ratios (LCR and NSFR) stood at 133.2% and 107.7% as at end-2022. 

The stable outlook reflects our expectation that CIMB Islamic would remain an integral member of the CIMB Group within which the bank would continue to be well supported.

The rating will come under pressure if there is a downgrade of CIMB Bank’s rating and/or if there is evidence of weakening support from the parent company.