CREDIT ANALYSIS REPORT

CIMB GROUP HOLDINGS BERHAD - 2021

Report ID 605389037 Popularity 118 views 8 downloads 
Report Date Aug 2021 Product  
Company / Issuer CIMB Group Holdings Bhd Sector Finance - Financial Holding Company
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Rationale
Rating action     
MARC has affirmed its long-term and short-term corporate credit ratings of AA+/MARC-1 on CIMB Group Holdings Berhad (CIMB Group) 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 that of its subordinated debt programme reflects the subordination of the latter to senior obligations of CIMB Group, in accordance with MARC’s methodology.

Rationale     
CIMB Group is a non-operating financial holding company and is the country’s second-largest and ASEAN’s fifth-largest banking group with total assets of RM602.4 billion as at end-2020. CIMB Bank Berhad (CIMB Bank) remains its core operating entity, accounting for 86% of total consolidated assets as at end-1Q2021 and historically contributing a substantial portion of dividend income to the group. CIMB Group’s long-term rating of AA+ reflects its subordination to CIMB Bank (AAA/Stable). 

CIMB Group’s affirmed ratings factor in the group’s status as a domestic systemically important bank (D-SIB) which hinges on CIMB Bank’s significant market position in loans and deposits in the domestic banking industry. In light of the current challenges brought on by the impact from the pandemic, CIMB Group undertook a cost reduction exercise that led to operating expenses decreasing by 9.1% y-o-y (or RM896.1 million) to RM9.0 billion in 2020. The group also undertook divestments of underperforming portfolios in Thailand and Singapore.

For 2020, CIMB Group’s profitability numbers were adversely affected by higher provisions, lower interest income and sizeable modification losses. Its pre-tax profit declined by 74.4% y-o-y to RM1.5 billion. Over the near term, the group’s financial performance will continue to be susceptible to the impact from the ongoing pandemic, although the group recorded an increase in pre-tax profit to RM2.9 billion as at end-1Q2021 (1Q2020: RM0.7 billion) partly due to lower interest expenses and impairment charges.

CIMB Group’s gross impaired loans (GIL) stood at 3.44% in 1Q2021 (1Q2020: 3.43%), mainly from the domestic market, Indonesia as well as Singapore of which was contributed by an exposure to a problematic oil and gas account. In the next 12 months, asset quality will continue to pose challenges in its Indonesian and Thai operations, which collectively accounted for 23.5% of its total loans (or RM86.2 billion) as at end-1Q2021.

Overall loan growth remains anaemic, growing by 0.7% y-o-y to RM366.6 billion as at end-1Q2021. Of its key operating markets, CIMB Group’s domestic loans accounted for 62.5% of its loan book, with Indonesia at 14.6%, Thailand at 8.9% and Singapore at 8.3%. As the group divests underperforming portfolios in the region, the domestic composition of loan and financing will be higher in the near term.

CIMB Group’s capital position strengthened in 2020 with Common Equity Tier 1 (CET1) and total capital ratios standing at 13.2% and 17.5% as at end-2020. Its capitalisation remains strong and provides the capacity to absorb potential shocks from any credit impairments once the extended and targeted assistance ends.

For 2020, CIMB Group received dividend income of RM1.8 billion that was more than sufficient to meet its debt obligations. Its debt-to equity (DE) ratio was stable at 0.57x, although borrowings have been on a rising trend since 2016, largely due to issuances of Basel III-compliant sub-debt issuances. Given these issuances are invested 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.

Loans-to-funds ratio stood at 82.5% while the current and savings account (CASA) ratio was strong at 41.9% (2019: 84.2%, 35.1%). The liquidity coverage ratios (LCR) and net stable funding ratios (NSFR) of its key subsidiaries stood well above the central bank’s required levels. 

Rating outlook     
The stable outlook assumes that CIMB Group will maintain its high systemic importance in Malaysia and will be able to navigate through the tough operating environment.

Rating trajectory

Downside scenario     
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.

Key strengths
Well-established domestic banking subsidiaries
Steady track record of dividend flow from key subsidiary CIMB Bank

Key risk
Weakening performance of key overseas banking subsidiaries


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