MARC Ratings has affirmed its long-term and short-term corporate credit ratings of AA+/MARC-1 on CIMB Group Holdings Berhad (CIMB Group) and its issue rating of AA on the group’s RM10.0 billion Basel III-compliant Tier 2 Subordinated Debt Programme. The ratings outlook is stable. 

The one-notch rating differential between CIMB Group’s long-term corporate credit rating and that of its subordinated debt programme reflects the subordination of the latter to the senior obligations of CIMB Group, in accordance with MARC Ratings’ methodology.

CIMB Group is a non-operating financial holding company and is the country’s second-largest banking group with total assets of RM632.6 billion as at end-1Q2022. CIMB Bank Berhad (CIMB Bank) remains its core operating entity, accounting for 84.8% of total consolidated assets as at end-1Q2022 and historically contributing a substantial portion of dividend income to the group. CIMB Group’s long-term rating of AA+ reflects its subordination to CIMB Bank (AAA/Stable). 

CIMB Group’s affirmed ratings are premised on the group’s status as a domestic systemically important bank (D-SIB) which hinges on CIMB Bank’s significant market position in loans and deposits in the domestic banking industry. For 2021, CIMB Group’s pre-tax profit rose to RM5.8 billion, normalising to the 2019 level of RM6.0 billion. The improvement is attributed to lower impairment charges of RM4.4 billion and interest expenses of RM7.4 billion (2020: RM6.8 billion; RM10.4 billion). Benefitting from lower interest expenses, the group’s net interest income rose by 7.9% y-o-y to RM14.0 billion. 

Its loan book recorded a 3.3% growth y-o-y to RM378.0 billion reversing a contraction in 2020 mainly due to pandemic-related initiatives. The contribution to growth was from Malaysia (+4.9% y-o-y), Indonesia (+5.2% y-o-y) and Singapore (+11.5% y-o-y) which offset the contraction in Thailand (-10.1% y-o-y). Its Thai subsidiary is undertaking a portfolio reshaping exercise initiated in 2020 that will include exiting the Thai commercial business. The group has forecast a loan book growth of 5%-6% in 2022 based on improving economic conditions.

CIMB Group’s gross impaired loans (GIL) ratio stood at 3.52% in 2021 (2020: 3.56%), mainly from the domestic market and Indonesia as well as Singapore of which was contributed by an exposure to a problematic oil and gas account. The group continued to provide relief measures as well as undertake restructuring and rescheduling (R&R) to manage its asset quality. In 2021, total loans under relief measures accounted for about 18% of the group’s loans, with Malaysia having the highest percentage at 24%, followed by Thailand (10%) and Indonesia (7%). We expect some of the loans to be non-performing upon the expiry of the support measures; however at this juncture, this has not been quantified.

CIMB Group’s capital position strengthened in 2021 with Common Equity Tier 1 (CET1), Tier 1 and total capital ratios standing at 14.2%, 15.1% and 18.0% (2020: 13.2%, 14.5%, 17.5%). Its capitalisation remains strong and provides the capacity to absorb potential shocks from any credit impairments once the extended relief measures end. 

For 2021, CIMB Group received dividend income of RM582.6 million that was sufficient to meet its debt obligations. Its debt-to equity (DE) ratio was stable at 0.52x, with borrowings declining slightly to RM14.3 billion. Borrowings, however, remained on the high side since 2016, largely due to Basel III-compliant sub-debt issuances. Given these issuances are invested in similar capital instruments issued by its banking subsidiaries, the debt servicing costs under the issuances have been met by cash flows from its subsidiaries.

Loans-to-funds ratio stood at 80.1% while the current and savings account (CASA) ratio was strong at 43.6% (2020: 82.5%, 41.9%). The liquidity coverage ratios (LCR) and net stable funding ratios (NSFR) of its key subsidiaries stood well above the central bank’s required levels. 

The stable outlook assumes that CIMB Group will maintain its high systemic importance in Malaysia and will be able to navigate through the tough operating environment.

The rating could come under pressure if there is any change in the rating of its core entity, CIMB Bank which would impact the group’s ratings and its subordinated instruments.