CREDIT ANALYSIS REPORT

CIMB BANK BERHAD - 2022

Report ID 6053890046834 Popularity 43 views 5 downloads 
Report Date Jul 2022 Product  
Company / Issuer CIMB Bank Bhd Sector Finance - Financial Institution
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Rationale
Rating action    

MARC Ratings has affirmed its financial institution (FI) ratings on CIMB Bank Berhad at AAA/MARC-1. Concurrently, the rating agency has also affirmed its rating of AA+ on the bank’s existing RM10.0 billion Basel III-compliant Tier 2 Subordinated Debt Programme. All the ratings have a stable outlook.

Rationale   

CIMB Bank’s high systemic importance in the domestic banking industry as the second-largest domestic bank by asset size remains a key factor for the FI ratings. The bank accounted for a sizeable 16.9% of total loans and 21.4% of core deposits of the domestic banking industry as at end-2021. CIMB Bank’s instrument ratings are notched down from the bank’s long-term FI ratings based on the relative loss severity risk profiles of the subordinated debts. 

In 2021, the bank recorded higher pre-tax profit of RM3.3 billion compared to RM1.0 billion in the previous year. The higher earnings were driven by an increase in net interest income of RM10.1 billion, lower impairment charges, and modification loss amounting to RM3.4 billion during the year (2020: RM8.9 billion, RM5.5 billion). Net interest margin remained stable at 2.10%. We expect CIMB Bank’s performance to normalise towards the pre-pandemic level, with modification losses unwound and lower impairment charges. 

CIMB Bank’s loan book grew by 2.9% y-o-y to RM322.7 billion in 2021, mainly driven by an increase in housing loans (+6.6%) to RM111.6 billion (2020: RM104.7 billion). This is in line with the 6.2% y-o-y growth in housing loans in the domestic banking industry, attributed to the government’s initiative to spur property transactions due to the adverse impact of the pandemic. CIMB Bank is more geographically diversified than most of its peers. However, the reshaping of its overseas portfolio, mainly in Thailand, led to an increase in the proportion of its domestic loan book size, which rose to 73.8% of total loans (2020: 72.3%). The second-largest exposure is in Singapore at 10.2%, followed by Thailand at 9.4% of total loans. For 1Q2022, consolidated loans grew by 4.7% y-o-y to RM329.2 million.

Consolidated gross impaired loans (GIL) ratio declined to 2.65% in 2021. Although notably higher than the industry average of 1.44%, the improvement in GIL ratio is in line with the bank’s Forward23+ strategy as well as the relief measures in relation to the COVID-19 pandemic. Some of the loans under the relief measures would potentially turn impaired once the assistance is withdrawn. 

CIMB Bank’s strong capital position and healthy liquidity positions provide some headroom to cope with potential headwinds in the banking industry. Common equity tier 1 (CET 1), Tier 1 capital and total capital ratios stood at 15.2%, 16.0% and 19.4%, well above the minimum regulatory requirements. Its liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) are well above the required levels at 148.6% and 107.1%. 

Rating outlook

The stable outlook reflects our expectation that CIMB Bank’s overall profile will be broadly maintained in the next 12-18 months.

Rating trajectory

Downside scenario

The rating could come under pressure if there is clear evidence of a decline in the importance of the bank in the domestic banking system, brought on by a sharp deterioration in the group’s asset quality and loss absorption capacity. 

Key strengths
  • High systemic importance to the domestic banking system
  • Well-established banking franchise
  • Improving cost-to-income ratio

Key risks
  • Asset quality issues from the pandemic-induced economic slowdown
  • Earnings pressure from the impact of the pandemic

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