Rating action             

MARC Ratings has affirmed its long-term and short-term corporate credit ratings of AA+/MARC-1 on CIMB Group Holdings Berhad 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 its subordinated debt programme rating reflects the subordination of the latter to the senior obligations of CIMB Group in accordance with MARC Ratings’ methodology.

CIMB Group is Malaysia’s second-largest banking group with total assets of RM695.6 billion as at end-1Q2023. As a non-operating financial holding company, CIMB Group relies on dividends from its banking subsidiaries, chief of which is CIMB Bank Berhad. The latter accounted for 84.8% of the group’s total consolidated assets as at end-1Q2023 and contributed around 77% on average to total dividend income over the past five years. CIMB Group’s long-term rating of AA+ reflects the subordination of the holding company’s financial obligations to CIMB Bank, which carries a AAA/Stable rating from MARC Ratings. CIMB Group is deemed a domestic systemically important bank (D-SIB), hinging on the systemic risk posed by CIMB Bank due to the bank’s significant market position in loans and deposits in the domestic banking industry.

Other key banking subsidiaries of the group are CIMB Investment Bank Berhad and Indonesia-based PT Bank CIMB Niaga Tbk as well CIMB Islamic Bank Berhad and CIMB Thai Bank Public Company Limited; the latter two are held through CIMB Bank. In 2022, consolidated pre-tax profit rose by 44.6% y-o-y to RM8.4 billion on the back of stronger loan and financing growth of the banking subsidiaries and lower impairment charges. Loan book recorded a 7.7% y-o-y increase to RM407.1 billion with all key markets recording moderate-to-strong growth: Malaysia (+6.4% y-o-y), Singapore (+12.0% y-o-y), Indonesia (+6.2% y-o-y) and Thailand (+7.5% y-o-y). For 2023, loan book is forecast to grow at around 5%-6%.

Gross impaired loans (GIL) were largely unchanged at RM13.3 billion in 2022 despite an increase in new impairments in 2022 following the wind down of relief measures in the countries the group operates in. GIL ratio declined to 3.27% (2021: 3.52%) largely due to a larger loan book. Total loans under relief measures have continued to decline, accounting for 3% of the group’s loan book in 2022 (2021: 20%); MARC Ratings does not expect any major spike in credit impairments arising from loans post-relief measures. The group also made a write-off amounting to RM3.6 billion in 2022.

CIMB Group’s Equity Tier 1 (CET1), Tier 1 and total capital ratios of 14.5%, 15.4% and 18.5% (2021: 14.2%, 15.1%, 18.0%) reflect capitalisation levels that provide headroom to absorb a moderate increase in credit impairments. 

Loans-to-funds ratio stood at 83.5% (2021: 80.1%) while the current and savings account (CASA) ratio declined slightly to 41.3% (2021: 43.6%). Its overhead costs seem contained with cost-to-income declining to 47.8% (2021: 48.3%) which is in line with its Forward23+ strategy; under this strategy, the group aims to achieve a cost-to-income ratio of 45% by 2024. 

For 2022, CIMB Group received dividends totalling RM3.1 billion that was sufficient to meet its debt obligations. Its debt-to-equity (DE) ratio improved to 0.48x, albeit with slightly higher borrowings of RM14.6 billion. Borrowings comprise Basel III-compliant sub-debt issuances, which were utilised to invest 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. 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 challenging economic 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.