CREDIT ANALYSIS REPORT

CIMB BANK BERHAD - 2021

Report ID 605389035 Popularity 119 views 11 downloads 
Report Date Aug 2021 Product  
Company / Issuer CIMB Bank Bhd Sector Finance - Financial Institution
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Rationale
Rating action     
MARC has affirmed its financial institution (FI) ratings of AAA / MARC-1 with a stable outlook on CIMB Bank Berhad. Concurrently, the rating agency has affirmed its ratings on the bank’s existing subordinated debt programmes as follows: 

  • RM10.0 billion Basel III-compliant Tier 2 Subordinated Debt Programme affirmed at AA+/Stable
  • RM5.0 billion Subordinated Debt and Junior Sukuk Programmes affirmed at AA+/AA+IS /Stable 
Rationale     
CIMB Bank group’s high systemic importance in the domestic banking industry as the second-largest domestic bank by asset size remains a key factor for the FI ratings. The bank accounted for a sizeable 17.0% of total loans and 18.4% of total deposits of the domestic banking industry as at end-1Q2021. CIMB Bank’s instrument ratings are notched down from the bank’s long-term FI ratings based on the relative loss severity risk profiles of the subordinated debts.

CIMB Bank is more geographically diversified than most of its peers but will move out from some segments in weaker operating markets in the region. This would potentially increase the proportion of its domestic loan book size, which stood at 72.3% of total loans of RM313.7 billion as at end-2020 followed by Thailand at 10.8% and Singapore at 9.4%.

Over the near term, domestic loan growth is expected to remain subdued given the slower-than-expected pace of easing of pandemic-induced restrictions while the weak economic conditions may prompt further assistance from the domestic banks. These conditions which have played out in the region to varying degrees coupled with the bank’s strategy on its foreign subsidiaries following recent losses will weigh on its overseas loan growth going forward. For 1Q2021, consolidated loans grew marginally by 1.3% y-o-y to RM314.4 million.

CIMB Bank’s performance has been sharply impacted by the pandemic crisis that had necessitated a sizeable provision of RM5.2 billion to be made and one-off modification losses as pre-emptive measures in 2020. This led to a sharp decline in pre-tax profit to RM1.0 billion in that year; profitability has since rebounded to RM1.4 billion in 1Q2021 compared to RM451.4 million in the corresponding period last year, with improvement due to lower impairment charges. Net interest margin remained flat at 2.16%.

As at end-1Q2021, CIMB Bank’s consolidated gross impaired loans (GIL) ratio stood at 2.56%, higher than the industry average of 1.57% and had been contributed by a sizeable impairment on an oil and gas–related account in Singapore. Management remains focused on the cost optimisation plan under its Forward 23+ strategy that has led to an improving trend in the bank’s cost-to-income ratio, falling to 48.1% in 1Q2021 from 56.5% in 1Q2020. Over the longer term, the impact on CIMB Bank’s asset quality will hinge largely on the success of the measures taken to shore up consumer and business confidence, and the timing of the economic recovery. 

CIMB Bank’s strong capital position and healthy liquidity mitigates some of the pressures from the pandemic, providing some headroom to cope with the increased challenges. For 1Q2021, the bank’s common equity tier 1 (CET 1) and total capital position stood at 12.8% and 17.6%, well above the minimum regulatory requirements of 7.0% and 10.5% (including a capital conservation buffer of 2.5%). This should be able to provide sufficient buffer to absorb weaknesses in its asset quality once the moratorium and targeted assistance ends. Its liquidity coverage ratio (LCR) and net stable funding ratios (NSFR) are well above the required levels. 

Rating outlook     
The stable outlook reflects MARC’s expectation that CIMB Bank’s overall profile will be broadly maintained in the current tough operating environment.

Rating trajectory

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

Key strengths
High systemic importance to the domestic banking system
Well-established banking franchise
Improving cost-to-income ratio

Key risks
Asset quality issues particularly in regional markets
Earnings pressure from the impact of the pandemic


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