MARC has affirmed the long-term rating of Commerce Asset-Holding Berhad (CAHB) at A+. This reflects the firm credit standing of the CAHB Group, which benefits from a strong franchise of its core subsidiaries; improving overall Group-wide earnings and asset quality; continuous efforts to keep gearing at bay and a proactive management. The rating however is constrained by the Group’s exposure to the financial services industry as a whole; the expanding earnings exposure to other countries and the limitations surrounding the company’s cash generation.

Against a backdrop of an intensely competitive financial services industry, the CAHB Group’s consolidated pre-tax profit surpassed the RM1 billion mark during the year, while the net non-performing loans (NPL) ratio of the Group decreased marginally from 6.1% to 5.5%. Comparatively the Group’s net NPL ratio remained well below the banking industry’s average. At the company level, profitability remained largely driven by dividend income from subsidiaries as well as gains from investments. With the successful disposal of its interests in associate and subsidiaries during the year, CAHB itself posted additional income of RM163.2 million from this source lifting pre-tax profit higher to RM379.3 million during the year.

The acquisition of PT Bank Niaga Tbk (Bank Niaga) exposed the CAHB Group to new cross-border challenges. Positively, the acquisition also shows the growing regional standing of the CAHB Group
and signals the way forward for the Group, enabling the Group to expand its market reach and expertise beyond the Malaysian borders, especially in light of the liberalization in the region.

Whilst CAHB’s cash generation appears unsteady, MARC notes the multiple cash raising avenues available to CAHB, from the dividend and interest income; equity funding to inter-related entity funding. As a financial holding company, MARC notes that CAHB’s capacity to fund its operations and its continuous access to such funding lies in the noteworthy value-creation ability of CAHB’s core subsidiaries as well as the strong shareholder support CAHB benefits from. However, the ability to raise equity funding is nonetheless inherently affected by uncertain market forces.

The government ownership through Khazanah forms a strong support for the Group. Furthermore the successful listing of CIMB Bhd (CIMBB) provides the Group with an additional avenue to raise funds by further offering for sale its shareholdings in CIMB, if the need ever arises.

Going forward, MARC expects the focus of the Group to remain on balancing interest and non-interest income sources, by further building on both its domestic and foreign franchises. Nevertheless, MARC remains cautious on the long-term impact of the Group’s activities in other countries in particular Indonesia, both translational as well as transactional implications.