CREDIT ANALYSIS REPORT

BANK PEMBANGUNAN MALAYSIA BERHAD - 2022

Report ID 6053890046902 Popularity 67 views 9 downloads 
Report Date Sep 2022 Product  
Company / Issuer Bank Pembangunan Malaysia Bhd Sector Finance - Financial Institution
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Rationale
Rating action     
MARC Ratings has affirmed its financial institution (FI) rating of AAA on Bank Pembangunan Malaysia Berhad (BPMB). Concurrently, the rating agency has also affirmed its rating of AAAIS on the developmental financial institution’s (DFI) RM5.0 billion Islamic Medium-Term Notes (IMTN) programme. The outlook on all ratings is stable.

Rationale     
BPMB’s status as a wholly government-owned institution mandated to provide financing to priority sectors in support of the government’s developmental goals remains the key rating driver. In this regard, infrastructure financing continued to account for the bulk of the bank’s loans/financing portfolio at 88.7% as at end-2021, with roads/highways being the largest sub-sector. The bank continues to provide guarantees for infrastructure-related projects. In executing its role, BPMB has received strong support from the government by way of government guarantees (GG) on the DFI’s as well as grants to cover credit losses on infrastructure financing and compensation for losses on problematic loans/financing. 

In November 2021, BPMB acquired 100% of Danajamin Nasional Berhad (Danajamin) under the first phase of the proposed merger of DFIs in the country. However, the full amalgamation of Danajamin with BPMB is expected to be completed by 4Q2022, following which the business and undertakings of Danajamin would be transferred and vested in BPMB. MARC Ratings does not envisage any dilution in BPMB’s mandated role as a result of the amalgamation exercise and views positively that BPMB will execute Danajamin’s commitments and undertakings.  

For full 2021, BPMB’s total asset size rose to RM26.1 billion from RM23.5 billion, mainly as a result of the acquisition. Its financing book grew organically by a higher 4.4% y-o-y to RM19.6 billion as economic activities resumed following the pandemic. Portfolio growth is expected to remain around 4%-5% p.a. over the next two years, supported by firmer economic recovery as reflected by MARC Ratings’ gross domestic product (GDP) forecast of a higher 5.5% in 2022. Following the acquisition, BPMB’s guarantee portfolio stood at a higher RM4.8 billion as at end-2021 (end-2020: RM1.7 billion) of which RM2.6 billion is accrued from Danajamin’s guarantee portfolio. 

In 2021, pre-tax profit improved to RM254.4 million (2020: RM157.5 million) mainly due to lower impairment and modification charges. We note Danajamin contributed to about 15% of the DFI’s pre-tax profit.

As with other DFIs, BPMB is inherently exposed to higher credit risks in view of its developmental role. Gross impaired financing (GIF) ratio stood lower at 10.5% (end-2020: 11.3%), supported by the extension of financial relief measures. About 38.3% of gross financing remains under relief measures. We note that the bank has been able to address the potential risk of increased delinquencies by building buffers through increased provisions in the last two years – financing loss coverage stood high at 169.3% (end-2020: 149.0%).

Core capital ratio (CCR) and risk-weighted capital ratio (RWCR) of 33.8% and 35.8% (end-2020: 33.4%; 42.5%) are deemed healthy. The high level of capitalisation provides ample headroom against potential losses. BPMB’s paid-up capital increased to RM4.0 billion from RM3.1 billion in 2020 following new shares issued as part of funding for Danajamin’s acquisition. 

BPMB’s relationship with the government allows for ready access to the capital market as well as deposits or borrowings from government-related bodies. Notably, BPMB’s liquidity coverage ratio and net stable funding ratio came in at 185.9% and 116.2%.   

BPMB has aligned its organisational culture towards sustainability values, in line with the government’s sustainable agenda. The DFI has included an assessment of environmental and social factors into its financing policies. In this regard, BPMB launched its impact assessment framework, Measuring Impact on National Development (MIND) in October 2021. The framework, jointly developed with the World Bank Group, considers the wider environmental and societal impact of its financing activities. 

Rating outlook     
The stable outlook is premised on BPMB maintaining its mandated role as a DFI, which will continue to receive 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 DFI
  • Strong capitalisation and regulatory oversight
  • Key role in supporting government’s agenda for the country’s sustainable development
Key risk
  • Pressures on asset quality upon easing of financial relief measures 

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