CREDIT ANALYSIS REPORT

CIMB ISLAMIC BANK BERHAD - 2019

Report ID 6037 Popularity 523 views 24 downloads 
Report Date Nov 2019 Product  
Company / Issuer CIMB Islamic Bank Bhd Sector Finance - Financial Institution
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Rationale

MARC has affirmed CIMB Islamic Bank Berhad’s (CIMB Islamic) financial institution (FI) ratings of AAA/MARC-1 with a stable outlook. CIMB Islamic’s FI rating is equalised to parent CIMB Bank Berhad (AAA/Stable) based on its strategic importance in Islamic banking, its shared branding and close operational integration within the group.

The rating agency has concurrently affirmed the ratings on CIMB Islamic’s sukuk issuances with a stable outlook as follows:

  • RM10.0 billion Senior Sukuk Wakalah Programme (Sukuk Wakalah) at AAAIS; and
  • RM5.0 billion Tier 2 Junior Sukuk Programme at AA+IS.

At end-1H2019, CIMB Islamic’s total assets stood at RM104.4 billion, accounting for 13.0% of Malaysia’s Islamic banking system assets. The bank remains the second-largest Islamic bank domestically. Financing growth continued to be strong, growing 14.2% y-o-y in 1H2019 compared to the Islamic banking industry growth of 8.2% in the same period. The bank’s financing growth policy benefits from its parent’s “Islamic First” strategy under which Islamic financing services are prioritised.

As a result of the strong financing growth during 1H2019, pre-tax profit was higher at RM557.1 million (1H2018: RM496.5 million). On annualising the net financing margin for 2019, it would be marginally lower at 1.69% (2018: 1.72%). MARC views margin pressure to continue due to intense competition among domestic Islamic banks. The bank’s liquidity and funding profiles remain sound, with a financing-to-funds ratio of 81.4% as at end-1H2019 (2018: 81.1%); liquidity coverage ratio is above the minimum 100% requirement.

CIMB Islamic’s gross impaired financing (GIF) ratio rose sharply to 1.76% (2018: 0.62%) largely due to an impairment in the working capital segment related to financing in real estate and manufacturing. The rating agency understands that this impairment is expected to be reversed in the near term. Asset quality could be affected due to the seasoning effect following strong financing growth in recent years.

CIMB Islamic’s healthy capitalisation ratios will continue to mitigate asset quality concerns. Common Equity Tier 1 (CET1) and total capital ratios stood at 13.2% and 15.5% as at end-1H2019 (2018: 13.5%; 16.2%). The bank’s capital position is supported by internal capital generation and by its parent CIMB Bank through the restricted profit-sharing investment account (RPSIA) which absorbs credit risk. As at end-June 2019, the total risk-weighted assets (RWA) for credit risk absorbed by the parent stood at RM6.7 billion (2018: RM6.9 billion).

Major Rating Factors

Strengths

  • Well-established domestic Islamic banking franchise; and
  • Ability to leverage on its parent CIMB Bank’s infrastructure and resources.

Challenge/Risk

  • Competitive domestic banking environment.
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