MARC has assigned ratings of AA/AAIS to CIMB Bank Berhad’s (CIMB Bank) proposed Tier 2 Subordinated Debt Programme and Junior Sukuk Programme respectively with a combined nominal value of RM5.0 billion. The ratings are one notch lower than CIMB Bank’s Financial Institution rating, reflecting its position relative to deposits and senior debt. Underpinning the ratings are CIMB Bank’s strong market standing in its domestic market, sound asset quality, robust capital adequacy as well as strong ability to mobilize deposits and access capital market funding. The prospect of regulatory support given the bank’s importance to the domestic financial system is also reflected in the ratings. The ratings carry a stable outlook.

CIMB Bank is a core entity of CIMB Group Sdn Bhd (CIMB Group), the universal banking entity encompassing investment banking, consumer banking, asset management and private banking. CIMB Group ranks among the top three banking groups in Malaysia and has a strong presence in its domestic market in the investment banking, retail and commercial banking, and wealth management sectors. The group also has a foothold in other Southeast Asian countries such as Indonesia and Singapore. In early 2009, CIMB Bank extended its regional universal banking platform to Thailand when it increased its stake in BankThai Public Company Limited (later renamed CIMB Thai Bank), to 93.15%.

CIMB Bank’s sustainable earnings base has been boosted by its broad domestic franchise backed by its extensive nationwide distribution network of 359 branches as well as improved and integrated processes and systems. The bank recorded a net profit of RM1.7 billion in FY2008, a 42.4% increase from previous year’s net profit of RM1.2 billion. Profitability of the bank was driven by several factors: increased interest income, higher fee income, lower loan loss provisioning and improved cost efficiencies arising from various efficiency-generating initiatives. For the three-month period ended 31 March 2009 however, the bank reported a lower net profit of RM396.4 million (1QFY2008: RM 608.7 million) as in the prior year’s corresponding period, it had recorded a RM248.7 million one-off gain from capital repayment of its subsidiary.

The bank has strengthened its credit culture and credit risk management infrastructure in recent years. Although it has a higher level of non-performing loans (NPLs) relative to the banking system as a consequence of earlier legacy asset quality problems, CIMB Bank continues to demonstrate improvement in its asset quality and progress in NPL resolution. Gross and net NPL ratios declined to 5.8% and 2.6% respectively as at end of FY2008 from 8.2% and 4.3% respectively as at end of FY2007. New NPLs have been contained at RM3.7 billion for FY2007 and RM3.1 billion for FY2008. As at end-March 2009, CIMB Bank’s gross NPL ratio lowered further to 5.7% as loan growth outpaced NPL growth. The bank has made adequate provisions for problem accounts and continues to actively pursue collection of NPLs in addition to disposing off the NPLs. Capital adequacy ratios of CIMB Bank have consistently hovered above its internal targets of 8.0% and 12.5% for its core capital and risk-weighted capital ratios respectively. Throughout FY2008, the bank had been increasing the Innovative and Non-Innovative components of its Tier-1 capital. Issues under the new subordinated debt/junior sukuk programmes, which qualify as Tier-2 capital, will help boost the bank’s RWCR. The bank’s relatively low appetite for credit and market risks provides assurance that its capital levels will remain strong in the context of anticipated weakening in economic and financial conditions in coming quarters.

The stable outlook for the ratings reflect MARC’s view that although conditions in the wider economy will weigh heavily on the bank’s financial performance and/or asset quality, the quality of the bank’s franchise, improved earnings capacity and its effective management of credit and market risks should position it well to cope with the more challenging operating environment ahead.

Contacts:
Milly Leong, 03-2090 2288/ milly@marc.com.my;
Taufiq Kamal, 03-2090 2251/ taufiq@marc.com.my;
Esther Ee, 03-2090 2270/ esther@marc.com.my