CREDIT ANALYSIS REPORT

BANK PEMBANGUNAN MALAYSIA BERHAD

Report ID 605274 Popularity 280 views 11 downloads 
Report Date Oct 2020 Product  
Company / Issuer Bank Pembangunan Malaysia Bhd Sector Finance - Financial Institution
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Rationale
MARC has affirmed Bank Pembangunan Malaysia Berhad’s (Bank Pembangunan) financial institution (FI) rating at AAA. Concurrently, the rating agency has assigned its rating of AAAIS to Bank Pembangunan’s RM5.0 billion Islamic Medium-Term Notes Programme (IMTN) Programme. The ratings carry a stable outlook. 

Bank Pembangunan’s status as a wholly government-owned development financial institution (DFI) and its key role to provide financial support to promote the growth of priority sectors as directed by the government remain key rating drivers. Government assistance to Bank Pembangunan is given through government guarantees, rate subsidies and infrastructure support funds for eligible projects.

Bank Pembangunan’s capital position as reflected by its Basel I core and risk-weighted capital ratios of 32.6% and 39.6% as at 1H2020 remains strong and well above comparable peers in the DFI space. The healthy capital position offers some buffer against a potentially further weakening in asset quality from the sudden impact on corporates from the COVID-19 pandemic. Its gross impaired loans, financing and advances (GIL/GIF) ratio stood at 12.1% as at 1H2020 (2019: 12.2%); its oil and gas, and technology sectors, while accounting for the relatively modest outstanding of its loan/financing book, accounted for a significant portion of the GIL/GIF. 

Bank Pembangunan’s loan/financing book continued to be dominated by the infrastructure sector, at about 89.5% of its total outstanding loans/financing as at end-2019. The sector encompasses roads/highways, ports, utilities, tourism among others; of which roads/highways constitute the largest component, which gives rise to concentration risk. MARC understands that most of the existing infrastructure loans/financing are related to government-initiated projects which benefit from direct or indirect government support. Nonetheless, loan/financing book has contracted in recent years, standing at around RM18.0 billion at end-1H2020 (2018: RM20.8 billion). The decline has also been contributed by large repayments/payments and prepayments, especially towards the end of 2019. Bank Pembangunan has embarked on a three-year strategic plan to broaden its loan/financing focus to include non-mandated sectors including sustainability-related initiatives. This is expected to support its loan/financing growth in the near-to-medium term. 

In 2019, the DFI’s profit before tax increased by 45.7% y-o-y to RM379.7 million; the improved performance was supported by lower provisions (2019: RM95.8 million, 2018: RM423.2 million). Accordingly, it recorded higher post-tax return on assets (ROA) and return on equity (ROE) of 1.02% and 3.26% (2018: 0.65%; 2.19%). The DFI’s funding profile remained largely supported by the government as reflected by government-guaranteed borrowings/financing and deposits from the government and its related entities accounting for 36.4% and 28.1% of total funding. Proceeds from the issuance will be utilised to partly replace some of the existing financing/borrowings. 

Major Rating Factors

Strengths
Wholly government-owned development financial institution; and
Strong capitalisation and strong regulatory oversight.

Challenge/Risk
High segmental concentration. 

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