Monday, Jan 20, 2003
Bumiputra-Commerce Bank Berhad’s (BCB) Financial Institution rating has been affirmed at A+ (single A plus) / MARC-1 and its detachable coupons of the RM667 million nominal value Irredeemable Convertible Unsecured Loan Stocks (ICULS) rating at A (single A flat). The rating of the detachable coupons reflects their subordination while the Financial Institution rating reflects the bank’s strong market position in Malaysia moderated by its relatively weaker asset quality compared to its peers.
BCB is currently the second largest commercial bank in Malaysia with total assets of RM64.0 billion as at June 2002. As a result of the 1999 merger between Bank of Commerce (M) Bhd and Bank Bumiputra (M) Bhd, the bank’s substandard/bad loans inherited from Bank Bumiputra were put to Danaharta Urus Sdn Bhd (DUSB) in exchange for DUSB bonds.
BCB’s gross loans reached RM40.6 billion as at June 2002; representing a 12.15% market share. Loans growth was driven by lending to the corporate and business segments, in particular, the property and finance services sectors. Loans for the purchase of residential properties accounted for 21% of total lending followed by loans to the manufacturing sector at 18%. Recognizing its somewhat weak market position in consumer lending vis-à-vis its peers, the bank is taking steps to enhance its competitiveness through, amongst others, the launching of new products.
The bank’s overall loan asset quality weakened in fiscal year 2001; reflected by the 63% surge in total outstanding non performing loans (NPLs) to RM3.94 billion, which increased furher to RM4.46 billion by mid 2002. BCB’s net NPL ratio consequently rose to 7.8% (FY2001: 7.2%). Almost half of the gross NPLs comprised of residential property financing, loans to the manufacturing and construction sectors. BCB’s management believes that further increases in NPLs will be moderated by the restructuring of certain large corporate NPLs and substantial write-offs.
The increase in NPLs has made BCB’s equity more vulnerable to credit deterioration with around 60% of its shareholders’ funds exposed to uncovered NPLs as at December 2001 (FY 2000: 32%). The Bank’s risk weighted capital ratio and core capital ratios slipped to 11.4% and 8.1% respectively (FY2000: 11.8%; 8.9%); below the industry’s 12.7% and 10.9% respectively. The conversion of RM355.6 million of ICULS into ordinary shares by December 2002 will help to strengthen the bank’s core capital for the current fiscal year.
Despite a reduction in liquid assets, BCB’s asset base remains relatively liquid compared to its peers. Contributing to the liquidity are the DUSB bonds which could be liquefied at Bank Negara’s discount window at any time. During FY2001, BCB’s customer deposits base fell by 1.4% to RM42.6 billion. Deposits from government bodies, which accounted for more than 30% of total deposits, provided some stability to the bank’s funding base.
BCB’s profitability for the fiscal year 2001 was eroded by the significant increase in loan loss provisioning. The bank’s interest spread remains comparable to its peers, supported by the high yielding retail and SME loan assets. Cost to income ratio, a measure of operating efficiency, rose to 51.1% from 47.9% partly due to the compensation expenses paid under the Voluntary Separation Scheme (VSS). Going forward, operating cost is expected to gradually improve with expected staff cost savings of about RM80 million per annum as well as cost reduction from the IT integration of the banking systems onto a common platform.
BCB is currently the second largest commercial bank in Malaysia with total assets of RM64.0 billion as at June 2002. As a result of the 1999 merger between Bank of Commerce (M) Bhd and Bank Bumiputra (M) Bhd, the bank’s substandard/bad loans inherited from Bank Bumiputra were put to Danaharta Urus Sdn Bhd (DUSB) in exchange for DUSB bonds.
BCB’s gross loans reached RM40.6 billion as at June 2002; representing a 12.15% market share. Loans growth was driven by lending to the corporate and business segments, in particular, the property and finance services sectors. Loans for the purchase of residential properties accounted for 21% of total lending followed by loans to the manufacturing sector at 18%. Recognizing its somewhat weak market position in consumer lending vis-à-vis its peers, the bank is taking steps to enhance its competitiveness through, amongst others, the launching of new products.
The bank’s overall loan asset quality weakened in fiscal year 2001; reflected by the 63% surge in total outstanding non performing loans (NPLs) to RM3.94 billion, which increased furher to RM4.46 billion by mid 2002. BCB’s net NPL ratio consequently rose to 7.8% (FY2001: 7.2%). Almost half of the gross NPLs comprised of residential property financing, loans to the manufacturing and construction sectors. BCB’s management believes that further increases in NPLs will be moderated by the restructuring of certain large corporate NPLs and substantial write-offs.
The increase in NPLs has made BCB’s equity more vulnerable to credit deterioration with around 60% of its shareholders’ funds exposed to uncovered NPLs as at December 2001 (FY 2000: 32%). The Bank’s risk weighted capital ratio and core capital ratios slipped to 11.4% and 8.1% respectively (FY2000: 11.8%; 8.9%); below the industry’s 12.7% and 10.9% respectively. The conversion of RM355.6 million of ICULS into ordinary shares by December 2002 will help to strengthen the bank’s core capital for the current fiscal year.
Despite a reduction in liquid assets, BCB’s asset base remains relatively liquid compared to its peers. Contributing to the liquidity are the DUSB bonds which could be liquefied at Bank Negara’s discount window at any time. During FY2001, BCB’s customer deposits base fell by 1.4% to RM42.6 billion. Deposits from government bodies, which accounted for more than 30% of total deposits, provided some stability to the bank’s funding base.
BCB’s profitability for the fiscal year 2001 was eroded by the significant increase in loan loss provisioning. The bank’s interest spread remains comparable to its peers, supported by the high yielding retail and SME loan assets. Cost to income ratio, a measure of operating efficiency, rose to 51.1% from 47.9% partly due to the compensation expenses paid under the Voluntary Separation Scheme (VSS). Going forward, operating cost is expected to gradually improve with expected staff cost savings of about RM80 million per annum as well as cost reduction from the IT integration of the banking systems onto a common platform.