CIMB Islamic Bank Bhd - 2009

MARC has assigned a rating of AAIS to CIMB Islamic Bank Berhad’s (CIMB Islamic) proposed Tier-2 Junior Sukuk Programme. The rating is positioned one notch lower than MARC’s assigned long-term financial institution rating on CIMB Islamic of AA+. The assigned corporate debt rating reflects the subordinated position of the Junior Sukuk relative to the bank’s deposits as well as senior unsecured debt. The financial institution rating of CIMB Islamic is equalised with that of the parent, CIMB Bank Berhad (CIMB Bank) and reflect extremely high probability of support for the Islamic bank from CIMB Bank should it become necessary. As a core entity of the collectively larger, stronger and diversified CIMB Group banking franchise, CIMB Islamic benefits from cost efficiencies derived from the high level of operational integration between CIMB Islamic and the other CIMB Group entities in addition to the shared branding. MARC expects CIMB Islamic to continue developing its Islamic banking franchise and augmenting its competitive positions in its target market segments, leveraging on the CIMB Group’s franchise and its parent bank’s comprehensive network of branches. CIMB Islamic displays sound asset quality, satisfactory capitalisation and strong liquidity. Meanwhile, CIMB Group’s strong enterprise risk management and relatively conservative risk appetite is mirrored in CIMB Islamic’s overall asset quality.

CIMB Islamic is the Islamic banking component of the CIMB Group’s Universal Bank which encompasses investment banking, commercial banking, asset management as well as takaful. CIMB Group in turn ranks among the top three banking groups in Malaysia and has a strong presence in its domestic market in the investment banking, retail and commercial banking, and wealth management sectors. The group’s corporate strategy is to operate as a seamless universal bank with top-tier positions in the commercial banking, investment banking and asset management segments. The group has also extended its reach by distributing Islamic banking and insurance products mainly via wholly-owned CIMB Islamic and 51%-owned CIMB Aviva Takaful Berhad, respectively.

CIMB Islamic assumed its present name in September 2006 following the merger exercise between Commerce Tijari Bank Berhad (subsidiary of the then Bumiputra-Commerce Bank Berhad) and the Islamic investment banking division of CIMB Investment Bank Berhad (then known as Commerce International Merchant Bankers Berhad) to transform itself into an Islamic universal bank providing Shariah-compliant  banking  products  and  services. In 2007, CIMB Bank transferred its Islamic  banking assets to CIMB Islamic along with Shariah-compliant assets the former had acquired from Southern Bank Berhad. CIMB Islamic operates under a dual banking model structure which leverages on its parent company’s infrastructure as well as resources. Islamic financial products are distributed via the CIMB Bank’s network of 359 branches. The sharing of resources improves operational and cost efficiency as well as productivity for the CIMB Group as a whole.

CIMB Islamic’s forte lies in investment banking. The bank’s reputation for innovation in Islamic finance has been a primary driver of its Shariah-compliant investment banking deal flow. The bank continues to dominate the Islamic debt lead managers league tables and in 2008, CIMB Islamic garnered 40.1%  of the RM Islamic bond market and 20.9% of the global Islamic bond market. CIMB Islamic has seen fairly strong growth in its commercial banking activities in recent years, as seen in the expansion in its total net financing base from RM6.2 billion as at end of FY2005 to RM7.6 billion as at end of March 2009.

For FY2008, CIMB Islamic reported a net profit growth of 13.2% to RM73.3 million, which was mainly driven by growth in financing income. The latter has been an important offset to its falling capital market-related fee income. The bank’s recently strengthened credit risk management infrastructure ensures financing portfolio growth is consistent with the stated risk appetite of the group. This underpins CIMB Islamic’s good asset quality measures. Its net non-performing financing (NPF) ratio improved from 6.7% as at end of 2006 to 1.3% as at end of March 2009. As the CIMB Group takes a group-wide approach in the management of the capital of its regulated entities, including CIMB Islamic, the bank’s capital adequacy will eventually be aligned with that of the group’s targeted levels of 10.0% and 12.0% for core capital ratio and risk-weighted capital ratio (RWCR), respectively. It currently reports satisfactory capitalsation with core capital and risk-weighted ratios of 9.0% and 10.5% respectively, as at end of March 2009.

The ratings outlook is stable premised on MARC’s belief that CIMB Islamic will continue to exhibit resiliency amidst a less benign banking and economic environment relative to prior years owing to tight risk management and satisfactory recurring income generation capacity. The sound deposit bases of CIMB Bank and CIMB Islamic as well as their ability to access capital market funding for its general banking purposes underscores our expectations that both entities will continue to maintain funding and liquidity profiles that are consistent with assigned ratings.

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