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. The ratings outlook is stable.

CIMB Bank’s high systemic importance in the domestic banking industry, well-established banking franchise and strong market position in loans and deposits are key rating drivers. It is the core banking subsidiary of CIMB Group, designated a domestic systemically important bank (D-SIB) by Bank Negara Malaysia (BNM). CIMB Bank’s instrument rating reflects the relative loss severity risk profiles of the subordinated debt. 

CIMB Bank is the second-largest domestic bank with an asset size of RM574.0 billion. The bank has over 200 branches across Malaysia and accounted for a sizeable 17.3% of total loans and 22.4% of core deposits of the domestic banking industry as at end-1Q2023.

For 1Q2023, pre-tax profit grew 3.5% y-o-y to RM1.7 billion, supported by higher non-interest operating income of RM893.0 million (1Q2022: RM658.9 million). Net interest margin (NIM) narrowed to 1.96% from 2.15% as at end-2022 on the back of stiff competition for deposits. In 2022, CIMB Bank benefitted from the multiple interest rate hikes during the year which, along with a larger loan base (RM348.6 billion) and lower impairment charges of RM1.2 billion, led to a sharp increase in pre-tax profit to RM6.4 billion (2021: RM3.3 billion).

MARC Ratings notes that the bank’s housing loan segment, which formed the largest component of the gross loans at about 35%, was the main growth driver (+8.5% y-o-y). This continues to reflect the bank’s growth strategy of focusing on the consumer segment. Apart from domestic loans, which accounted for 72.6% of total loans in 2022 (2021: 73.8%), loan exposure in Singapore and Thailand accounted for 10.6% and 9.4% of total loans. For 1Q2023, consolidated loans grew 6.9% y-o-y to RM351.7 billion, reflecting the economic recovery in the countries it operates. 

Consolidated gross impaired loans (GIL) ratio declined to 2.34% in 2022 due to write-offs, recoveries and sale of impaired loans following the expiry of most of its relief facilities. This strategy is expected to continue in the near term. In 2022, loans under relief facilities declined to 3% from 30% in the prior year. Although the GIL ratio is higher than the industry average of 1.57%, MARC Ratings views the steady improvement in the ratio as a positive impact from the bank’s Forward23+ strategy. 

CIMB Bank’s investment portfolio amounted to about RM137.7 billion or about 24.0% of total assets as at end-2022 with the domestic portfolio constituting the bulk of the investment at 90.1%. Government-related securities made up 62.8% of the group’s investment, followed by private debt securities (PDS) at 32.2%. Common Equity Tier 1 (CET1), Tier 1 and total capital ratios stood at 15.1%, 15.8% and 19.5%, largely in line with its peers. Its liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) met the minimum requirements and stood at 125.0% and 109.3%.

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

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