CREDIT ANALYSIS REPORT

BANK PEMBANGUNAN MALAYSIA BERHAD - 2021

Report ID 60538900404 Popularity 49 views 16 downloads 
Report Date Nov 2021 Product  
Company / Issuer Bank Pembangunan Malaysia Bhd Sector Finance - Financial Institution
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Rationale
Rating action     
MARC has affirmed Bank Pembangunan Malaysia Berhad’s (Bank Pembangunan) financial institution (FI) rating of AAA. Concurrently, the rating agency has also affirmed its rating of AAAIS on the bank’s RM5.0 billion Islamic Medium-Term Notes (IMTN) Programme. The outlook on all ratings is stable

Rationale
Bank Pembangunan’s status as a wholly government-owned institution mandated to provide financing to priority sectors in support of the government’s development goals remains the key rating driver. We note government support has been forthcoming by way of government guarantees (GG) as well as compensation for losses on problematic loans/financing. Bank Pembangunan is also leading the way in the DFI space in incorporating responsible lending practices in line with the government’s sustainable development agenda. 

In November 2021, Bank Pembangunan acquired a 100%-interest in Danajamin Nasional Berhad (Danajamin) from Credit Guarantee Corporation Malaysia (CGC) and the Ministry of Finance Incorporated (MoF Incorporated), turning the entity into a wholly-owned subsidiary of Bank Pembangunan. The acquisition is the first phase under the government’s plan in consolidating the country’s DFIs. MARC regards that the consolidation of DFIs will align mandates, create synergies and improve efficiencies in the DFI space. We are of the view that the acquisition does not have immediate rating implications on Bank Pembangunan.

For 1H2021, Bank Pembangunan’s loans/financing portfolio expanded to RM19.6 billion (end-2019: RM18.2 billion), with growth supported by the government’s subsidy via special schemes channelled through the DFI. We note that the gross impaired loans/financing (GIL/GIF) ratio further eased to 10.8% in 1H2021 (end-2020: 11.3%) largely on the back of loan/financing portfolio growth. Notwithstanding the improvement, asset quality could come under pressure once debt relief programmes expire.

Bank Pembangunan’s pre-tax profit grew to RM326.8 million in 1H2021 (end-2020: RM157.5 million) aided by higher net interest/profit income. We observe the lower profitability in 2020 was due to pre-emptive provisions of RM670.2 million and modification losses of RM0.6 million. Its core capital ratio (CCR) and risk-weighted capital ratio (RWCR) stood at 33.4% and 42.6% as at end-June 2021, allowing some buffer against asset quality weakening. The DFI’s core capitalisation remained healthy with its Tier 1 capital, which comprises share capital and reserves, accounting for close to 78% of the DFI’s total capital base.

Bank Pembangunan’s total funding base stood at RM22.9 billion as at end-2020, comprising largely of funds from government-related institutions. Its mix of short-term funding to medium- and long-term funding remains at a 25:75 ratio as at end-2020, in line with its strategy of a 30:70 mix to better match the DFI’s assets which are generally long-term in nature. The proportion of its GG borrowings-to-total funding stood at 18.9% as at end-2020. We note that this proportion has continued to decline from 25.0% as at end-2019, indicating that the DFI will increasingly rely on its strength to tap into the capital market for funding. Towards this end, Bank Pembangunan has established a RM5.0 billion IMTN programme.

Over the near term, we expect that Bank Pembangunan would further strengthen its position in the sustainability financing space through collaboration with various government ministries and the World Bank, realigning its lending practices towards meeting its sustainable development goals (SDGs) and allocating resources to implement policies and ensure compliance with the goals. The move into the sustainability space is in line with the DFI’s strategic transformation plan (STP), in addition to becoming a full-fledged Islamic DFI and diversifying its business portfolio in the near term. 

Rating outlook     
The stable outlook assumes that Bank Pembangunan will remain as a government-owned entity and receive government support if and when required.

Rating trajectory

Downside scenario     
Any change in the rating/outlook would largely be determined by a change in the government ownership structure and/or changes in its government-mandated role. 

Key strengths
Wholly government-owned development financial institution (DFI)
Strong capitalisation and regulatory oversight
Strengthening position in sustainable development projects 
Key risk
Potential asset quality weakening given pandemic-induced economic conditions 


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