MARC announced today that it has affirmed with a stable outlook and withdrawn its A+ rating on CIMB Group Holdings Berhad's (CIMBG Holdings) RM3.0 billion Cumulative Subordinated Fixed Rate Notes Programme (2009/2074).  The rating withdrawal is subsequent to the issuer's request and means that MARC will no longer carry out surveillance on the subordinated notes which remains outstanding.

The rating affirmation reflects the strong business franchise of CIMB Group, its healthy financial profile, solid dividend paying capacity of its main operating subsidiaries, improved risk management capabilities and management expertise. Being a company listed in the main board of Kuala Lumpur Stock Exchange, the rating also incorporates CIMBG Holdings’ good financial flexibility. Anandakumar Jegarasasingam, MARC’s Head of Financial Institutions Ratings, however, adds that the ratings are constrained by CIMB Group’s still evolving business and risk profile as a regional banking group and the potential for performance volatility given the less stable economic and financial environment in its key overseas markets, as well as uncertainty in the pace of domestic economic recovery. Nevertheless, the withdrawal of the rating with a stable outlook reflects MARC’s expectations that CIMBG Holdings’ subsidiaries would not be seriously affected by the lag effect of the global economic crisis, and dividends upstreamed from subsidiaries would be sufficient to cover its debt obligation.

CIMB Group is the second largest financial services group in Malaysia with a strong business franchise in its domestic market. CIMB Bank Berhad (financial institution rating of AA+/Stable Outlook from MARC) and CIMB Investment Bank Berhad, the main operating subsidiaries of the group, are strongly positioned as the third largest commercial bank and the top investment bank respectively. In addition, the group has over the past few years established its presence in Southeast Asia through mergers and acquisitions in an attempt to evolve into an ASEAN regional bank. The contribution of overseas businesses to the group pre-tax profits increased to 26% in FY2009 from 11% in FY2008, with PT Bank CIMB Niaga Tbk (CIMB Niaga) from Indonesia being the key overseas earning contributor. Meanwhile, in Thailand, CIMB Thai Bank Public Company Limited (CIMB Thai) still remains financially weak at this stage, dragged by its poor-quality loan portfolio as reflected by a gross NPL ratio of 14.9% as at end-FY2009.

Anandakumar noted that CIMB Group’s overseas exposure diversifies the group’s revenue base but at the same time exposes it to the country risks of other regions. The success of the group’s overseas endeavours hinges on its ability to manage its new enlarged risk profile and the unique challenges in each market. In this context, Anandakumar views the group’s prior experience in successfully integrating its various domestic acquisitions and its improved risk management capabilities as important mitigating factors.

At the group level, CIMB Group reported improved pre-tax profit of RM3.0 billion for FY2009, 51.4% higher compared to FY2008. Consequently, the group’s return on assets and return on equity expanded to 1.4% and 15.1% from 1.0% and 11.6% respectively. The results reflected the full consolidation impact of Indonesia-based CIMB Niaga, which merged with PT Bank Lippo Tbk at end-FY2008. In addition, the group’s treasury and investment segment delivered much better results during the period, offsetting the impact of the slowdown in consumer and investment banking in 2009.

CIMBG Holdings is an investment holding company without any other core income-generating activities. Its reported gearing ratio was low at 27% as at end-FY2009. However, its double leverage ratio of 119.4% as at end-FY2009 indicates CIMBG Holdings’ high reliance on dividend income from its subsidiaries to meet its debt obligations. For the first nine months of FY2009, the dividend income from the subsidiaries amounted to RM680 million, much higher than the finance cost of RM69 million for the period. While future upstreaming of dividends to the holding company may be contingent upon capital requirements of the subsidiaries, MARC does not expect any immediate impact on the holding company’s debt servicing ability considering CIMB Group’s track record in proactively managing its capital requirements.

Contacts
Anandakumar Jegarasasingam, 03-2090 2250/ kumar@marc.com.my
Lim Kok Seng, 03-2090 2272/ kokseng@marc.com.my