CREDIT ANALYSIS REPORT

CIMB ISLAMIC BANK BERHAD - 2022

Report ID 6053890046833 Popularity 46 views 6 downloads 
Report Date Jul 2022 Product  
Company / Issuer CIMB Islamic Bank Bhd Sector Finance - Financial Institution
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Rationale
Rating Action     
     
MARC Ratings has affirmed CIMB Islamic Bank Berhad’s (CIMB Islamic) financial institution (FI) ratings of AAA/MARC-1/Stable. Concurrently, the rating agency has also affirmed its ratings on CIMB Islamic’s sukuk issuances as follows:

  • RM10.0 billion sukuk senior Sukuk Wakalah programme (Sukuk Wakalah) at AAAIS/Stable
  • RM5.0 billion Tier 2 Junior Sukuk programme at AA+IS /Stable
The rating on the Tier 2 Junior Sukuk programme reflects its subordination to the senior Sukuk Wakalah programme which has been equalised to the bank’s long-term FI rating.

Rationale     

CIMB Islamic’s rating is equalised to parent CIMB Bank Berhad (AAA/Stable) given its strategic importance as the Islamic banking arm of the CIMB Group, shared branding and close operational integration within the group.

In tandem with the Group’s strategy in managing asset quality, CIMB Islamic has maintained a prudent stance in regard to growth. Gross financing grew 6.9% y-o-y (end-2020: +8.1% y-o-y) from the level a year earlier to stand at RM91.8 billion as at end-2021. Household financing, which remains as the primary growth driver, expanded slower at 13.4% y-o-y (end-2020: 14.4%). Financing activities are expected to pick up pace, on the resumption of business activities, with economic recovery envisaged to be firmer and more broad-based on account of the accommodative monetary and expansionary fiscal policy, as evidenced in further expansion in its financing book to RM94.5 billion going into 1Q2022. 

The bank’s gross impaired financing (GIF) ratio declined to 0.70% as at end-2021 from 1.74% a year earlier. The improvement in asset quality was a result of various relief measures, coupled with recoveries as well as write-offs. Approximately 24.5% of the bank’s total financing were under relief measures as at end-2021. While the various measures provide some relief on asset quality, clarity on customers’ repayment capabilities would only become more apparent as the bank winds down the repayment assistance. Though GIF ratio remained low at 0.70% going into 1Q2022, we are still wary of delinquencies exhibiting an upward trend in the quarters.

Profit performance for 2021 rebounded on the back of a larger financing book, broader net financing margin (NFM) as well as lower provisioning expenses and modification charges. Net financing income rose 19.4% y-o-y to RM2.4 billion driven by a 17-bps expansion in NFM to 2.03% and gross financing growth of 6.9% y-o-y. NFM expanded favourably despite the lower overnight policy rate (OPR) as deposits were repriced more efficiently than its financing book. Notably, reduction in cost of funds were driven by the growth in low-cost current and saving (CASA) deposits. Pre-tax profit grew 85.2% y-o-y to RM1.2 billion; the bank’s return on assets (ROA) and equity (ROE) came in higher at 0.73% and 11.77%. The bank’s profit performance continued going into 1Q2022 with pre-tax profit up 28.6% to RM410.3 million (1Q2021: RM319.1 million) and is expected to continue its upside supported by further pick-up in financing demand, moderating provisions and relatively stable NFM.

CIMB Islamic’s capitalisation levels continued to provide ample headroom in cushioning further asset quality weakening. As at 1Q2022, common equity tier 1 (CET1) and total capital ratios stood at 14.0% and 17.3%, relatively on par with its peers. The bank’s capital position benefits from a restricted profit-sharing investment account (RPSIA) mechanism with its parent, which provides a substantial lift to the bank’s capital ratios. We foresee that the bank’s healthy capitalisation will remain sound, providing headroom against potential delinquencies. 

Customer deposits continued to constitute the bulk of CIMB Islamic’s funding at 81.4% as at end-1Q2022. Although improved, the bank’s proportion of CASA deposits, which was at 25.3% over the same period, still lags behind the Malaysian Islamic banking system’s average of 28.0%. It is also noted that large depositor accounts make up a significant portion of CIMB Islamic’s deposits with the bank’s top 10 depositors accounting for 38.1% as at end-2021, exposing it to some degree of depositor concentration risk. CIMB Islamic’s liquidity coverage ratio (LCR) and net stable funding ratios (NSFR) came in at a respectable 135.4% and 110.2% as at end-1Q2022. We also draw comfort from the ready parental funding and liquidity support, if required. 

Rating outlook     

The stable outlook reflects our expectation that CIMB Islamic would remain an integral member of the CIMB Group, with readily available support when required.

Rating trajectory

Downside scenario     
The rating will come under pressure if there is a downgrade of CIMB Bank’s rating and/or if there is evidence of weakening support from parent company, CIMB Bank. 

Key strengths
Well-established domestic Islamic banking franchise
Ability to leverage on its parent CIMB Bank’s infrastructure and resources 
Key risks
Asset quality challenges post-relief measures
Exposed to some degree of depositor concentration risk 





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