MARC Ratings has affirmed its long- and short-term financial institution (FI) ratings of AA+/MARC-1 on China Construction Bank (Malaysia) Berhad (CCBM) with a stable outlook.

CCBM’s healthy metrics as reflected by high provisioning levels, strong capital ratios, as well as healthy liquidity and funding positions remain key rating drivers. CCBM’s long-term rating of AA+ is notched down from its parent China Construction Bank Corporation’s (CCB) AAA rating. CCBM’s rating of AA+ is in line with our rating approach which views the bank as a strategic entity of its parent. The notching approach also considers CCB’s explicit intent of support extended to CCBM, its 100% ownership in CCBM and the significant operational linkages between them. 

CCB’s AAA rating, based on public information, reflects its status as a majority-owned financial entity of the Chinese government and as a systemically important bank in China given its position as the world’s second-largest bank by total assets. CCB is one of the four China banks classified as global systemically important banks (G-SIB).

CCBM’s total capitalisation of 60.0% as at end-9M2021 remains very strong. This is largely due to the bank’s conservative appetite to avert loan growth since the onset of the pandemic crisis in 2020. The capital level is also bolstered by the US$200 million subordinated loan undertaken in 2019. For 9M2021, gross loans declined by 27.7% y-o-y to RM2.0 billion. Its loan growth is expected to resume in 2022 as pandemic concerns ease substantially and borders reopen. To date, the key projects CCBM has financed include the East Coast Rail Link (ECRL), Proton City and Malaysia-China Kuantan Industrial Park.

CCBM continues to support China-based companies including those undertaking construction and infrastructure projects under China’s Belt and Road Initiative (BRI). Stemming from this strategy, the bank’s loans tend to be sizeable and granted to large corporations; its top five borrowers accounted for 46.9% of total loans outstanding as at end-9M2021. CCBM also finances local entities as well as other China-based companies seeking a foothold in the Malaysian market. CCBM’s asset quality remains strong without any impairment since beginning operations; however, given its large loan exposures, any asset quality weakness could lead to a large spike in impairments. This risk is largely mitigated by monitoring and controls that are in place including support within the CCB group. 

For 9M2021, pre-tax profit improved to RM60.3 million, largely owing to write-back of allowance. Its cost-to-income ratio remained stable at 50.5% during the period. Pre-provision profit, however, declined 11.9% y-o-y to RM44.0 million on the back of a smaller loan book. Basel III liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) stood at 294.3% and 218.5% as at end-2021 (2020: 195.9%; 129.9%), exceeding the minimum regulatory requirements.

The stable rating outlook assumes continued support from CCB to CCBM, the parent’s financial profile remains strong and CCBM maintains its healthy capitalisation.

The rating would face downward pressure if there is evidence of an explicit decline in CCB’s capacity and willingness to support CCBM or if the parent’s performance weakens substantially and/or CCBM’s key metrics deviate from expectations.