View Credit Analysis Report (6053654)

MARC has affirmed its long- and short-term financial institution (FI) ratings of AA+/MARC-1 on China Construction Bank (Malaysia) Berhad (CCBM). The ratings outlook is stable.

Rationale     
The affirmed FI ratings on CCBM incorporate the bank’s healthy metrics as reflected by improving profitability, continued high provisioning level with very strong capital ratios, and strong liquidity and funding position. Since commencing banking operations in early January 2017, CCBM continues to be very well supported by parent China Construction Bank Corporation (CCB), which carries a public information rating of AAA/Stable from MARC. This rating mainly reflects CCB’s status as a majority-owned financial entity of the Chinese government and as a systemically important bank in China given its position as the world’s second-largest bank with a key share of the loans and deposits of the Chinese banking system. 

CCBM’s long-term rating of AA+ is notched down from that of CCB in line with MARC’s rating approach which views the subsidiary as a strategic entity to its parent. The notching approach considers the explicit intent of support extended to the subsidiary by the parent and factors in CCB’s 100%-ownership in CCBM and the operational linkages between both entities. 

CCBM’s total capitalisation stood at a very healthy level of 56.5% as at end-2020 (2019: 49.0%), providing ample headroom to support loan growth as the economy recovers from the waning impact of the COVID-19 pandemic. In particular, the infrastructure sector in Malaysia, in which CCBM has demonstrated its ability to fund large-scale projects is expected to strengthen over the near term. CCBM has a policy role to support China-based companies undertaking projects under China’s Belt and Road Initiatives (BRI) framework. This is evident in the bank’s loan portfolio composition with its top-five borrowers accounting for 37.6% of total loans outstanding as at end-2020 (2019: 36.4%). CCBM also finances other China-based companies seeking a foothold in the Malaysian market and local entities. 

The aforementioned factors notwithstanding, CCBM’s growth momentum was halted in 2020 owing to the pandemic as corporates adopted a cautious stance on capital spending. As a consequence, gross loans contracted by 10.3% y-o-y to RM2.4 billion as at end-2020. Its loan growth is expected to resume in 2021 as economic concerns ease and as borders between countries reopen.

CCBM’s asset quality remains strong without any impairment since beginning operations, although given its large loan exposures, any asset quality weakness could lead to a large spike in impairments. This risk is largely mitigated by monitoring and controls that are in place including support within the CCB group to address budding problems.

Net profit grew by a significant 79.9% y-o-y to RM29.5 million, largely supported by sharp growth in fee income. Its cost-to-income ratio continued to show an improving trend to 49.0% during the period on the back of improved earnings (2019: 63.7%). Basel III liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) stood at 195.9% and 129.9% as at end-2020 (2019: 245.9%; 155.9%), exceeding the minimum regulatory requirements.

Rating outlook