Bumiputra-Commerce Bank Berhad’s (BCB) Financial Institution rating has been upgraded to AA-/MARC-1 and its detachable coupons of the RM667 million nominal value Irredeemable Convertible Unsecured Loan Stocks (ICULS) rating to A+. The upgrades reflect the consistent improvement in the last several years, in the bank’s financial standing and overall asset quality. These improvements were achieved by the bank’s continuing efforts to consolidate its market position in the higher yielding consumer banking, introduction of a new risk management framework and progress in its loan recovery initiatives.

Currently the second largest commercial bank in Malaysia, BCB’s gross loans reached RM42.1 billion in fiscal year 2003, an increase of 3.7% from the preceding year. Loans growth was driven by higher lending across all business segments, in particular strong manufacturing loans growth of 14.1% which provided anchorage to overall loans growth. In its continuing efforts to enhance its presence in the retail segment, the bank is taking steps to increase its competitiveness through, amongst others, the launching of new products and services and the restructuring of its existing distribution and marketing infrastructure.

The bank’s asset quality continues to improve as total outstanding gross NPLs fell marginally by 1.9% to RM4.3 billion in 2003 with BCB’s net NPL ratio settling at a favourable 6.9%. MARC expects the bank’s asset quality to remain stable in the near term given the strong economic outlook in Malaysia and the bank’s continuing efforts to restructure certain large corporate NPLs and emphasis on recovery and collection process.

While the bank’s loan loss reserves of 46.3% of NPLs is lower than its peers, any deficit in the reserves are likely to be supported by the bank’s strong balance sheet position and earnings capability.

The bank’s liquid asset ratio increased from 28.0% to 33.7% in fiscal year 2003, driven by growth in its customer deposit base and its established relationships with certain corporates and government institutions. Moving forward, improvements in the bank’s distribution network are likely to attract more deposits, hence strengthening their liquidity position.

As at end 2003, the bank’s risk weighted and core capital ratios increased to 14.4% and 9.5% respectively (FY2002: 11.5%; 9.0%). The bank’s fund raising exercise in the second half of 2003 amounting to USD300.0 million helped strengthen its capital adequacy position. MARC expects the bank’s capital position to remain resilient in the near term.

BCB’s profitability improved significantly for the fiscal year 2003 due to lower loan loss provisioning and lower interest expense. Profit before tax stood at RM488.2 million, a 55.2% increase from 2002. The bank’s interest spread was comparable to its peers, contributed by its high yielding retail and SME loan assets. Cost to income ratio, a measure of operating efficiency, however increased to 53.4% from 49.2% partly due to higher staff costs, replacement cost of ATM cards and other upgrading initiatives undertaken during the year. For the first quarter ended 31 March 2004, the bank reported a profit before tax of RM121.6 million, representing a year-on-year increase of 75.3%. MARC expects the bank to record another strong performance in 2004.