MARC Ratings has affirmed CIMB Islamic Bank Berhad’s (CIMB Islamic) financial institution (FI) ratings of AAA/MARC-1/Stable. Concurrently, the rating agency has affirmed its ratings on CIMB Islamic’s sukuk issuances as follows:

The rating on the Tier 2 Junior Sukuk Programme reflects its subordination to the Senior Sukuk Wakalah Programme, the rating of which has been equalised to the bank’s long-term FI rating. 

CIMB Islamic’s FI ratings are equalised with those of parent CIMB Bank Berhad (AAA/MARC-1/Stable) due to strong operational and strategic linkages. CIMB Islamic is a core subsidiary of CIMB Bank, being the parent’s Islamic financing arm. CIMB Islamic benefits from CIMB Group’s “Islamic First” strategy that has propelled its financing growth to a strong 12.9% in 2023, exceeding the Islamic banking industry average of 7.9%. CIMB Islamic represented 28.6% of CIMB Group’s total financing as at end-1Q2024. MARC Ratings also views operational linkages between the two banks as strong, evidenced through shared group branding and network infrastructure; CIMB Islamic leverages on CIMB Bank’s extensive branch network and resources for business. 

CIMB Islamic is one of the major Islamic banks in Malaysia, with a 13.9% share of the Islamic banking system’s assets as at end-1Q2024. The majority of its financing portfolio is skewed towards the residential property sector (about 40% of total financing book). In 2023, this segment grew by a strong 21.7% y-o-y to RM49.4 billion. Other key segments such as working capital, vehicle financing and non-residential property also reported strong double-digit growth of 12.7%, 17.1% and 22.4%. 

Gross impaired financing (GIF) ratio edged up to 1.40% as at end-1Q2024 from 1.29% in 2022, due to credit normalisation following the unwinding of relief measures and the seasoning of the financing book. Some further uptick in the impairment ratio is likely following periods of rapid growth (2023: 12.9%; 2022: 18.8%) and as loans season. Financing loss reserve coverage ratio of 100.5% as at end-1Q2024 provides some cushion against potential adverse situations or credit losses. 

In terms of profitability, CIMB Islamic’s pre-tax profit declined to RM1.2 billion in 2023 (2022: RM1.5 billion), despite strong financing volumes. This was due to the narrowing of the net financing margin (NFM) to 1.62% from 2.04% in 2022 brought about by stiff deposit competition. In 1Q2024, pre-tax profit improved to RM340.2 million, up 27.0% y-o-y (1Q2023: RM267.9 million), while the NFM widened somewhat to 1.67%.

CIMB Islamic’s capitalisation remained adequate, with Common Equity Tier 1 (CET1), Tier 1 capital and total capital ratios standing at 12.9%, 13.4% and 15.3% as at end-1Q2024. The bank maintains a restricted profit-sharing investment account (RPSIA) arrangement with CIMB Bank. Under the arrangement, any risk arising from RPSIA-funded financing will be transferred to CIMB Bank. CIMB Islamic’s liquidity position remained healthy with liquidity coverage ratio (LCR) at 148.9% and net stable funding ratio (NSFR) at 102.3% as at end-2023. 

The stable outlook reflects MARC Ratings’ expectation that CIMB Islamic would remain an integral member of the CIMB Group within which the bank would continue to be well supported.

The rating will come under pressure if there is a downgrade in CIMB Bank’s rating and/or if there is evidence of weakening support from the parent company.