MARC has assigned final ratings of AA+/AA+IS to CIMB Bank Berhad’s (CIMB Bank) proposed Tier 2 Subordinated Debt and Junior Sukuk Programme respectively with a combined nominal value of RM5.0 billion. The ratings are one notch lower than CIMB Bank’s affirmed long-term financial institution rating, reflecting its position relative to deposits and senior debt. Underpinning CIMB Bank’s financial institution ratings of AAA/MARC-1 with a stable outlook are its resilient earning streams, adequate capitalisation and strong business franchise in Malaysia. The prospect of regulatory support given the bank’s importance to the domestic financial system is also reflected in the ratings. In relation to this rating action, MARC has also affirmed the ratings of other corporate debt issuances by the bank; the full list of such issuances is given at the end of this release. All ratings carry a stable outlook.

CIMB Bank is the third largest commercial bank in Malaysia by asset size. The bank has a significant retail franchise; individual loans and deposits comprise 52% of the bank’s loans and 31% of deposits as at end-FY2009. In addition, CIMB Bank is the second largest domestic mortgage lender and commands a market share of 10% in retail deposits. The bank continues to deepen its retail franchise, which MARC considers as key to sustaining CIMB Bank’s growth potential and profitability. Accounting for 51% of CIMB Group Holdings Berhad’s (CIMB Group) pre-tax profits in FY2009, CIMB Bank is the core entity within the CIMB Group, Malaysia’s second largest financial services group. The group aims to set up a Southeast Asian universal banking platform and has established foothold in countries such as Indonesia and Singapore. In early 2009, CIMB Bank extended its banking platform to Thailand when it increased its stake in BankThai Public Company Limited (later renamed CIMB Thai Bank) to 93.15%. CIMB Group is also embarking on dual listing in Thailand to strengthen its franchise in the Thai banking sector, in addition to diversify its current funding sources.

CIMB Bank’s performance improved in the first nine months of FY2010 (9MFY2010) with annualised return on assets (ROA) increasing to 1.15% from 0.96% in FY2009. The improved results were mainly attributed to an increase in net interest income on the back of larger interest-earning assets and lower impairment losses on loans as a result of improved loan quality. The disposal of RM925 million worth of non-performing loans (NPL) (net book value) at the end of FY2009 also contributed to the lower impairment charge during the period. That said, the NPL ratio weakened to 4.3% at end-9MFY2010 from 2.6% at end-FY2009 mainly as a result of the adoption of FRS139 standards effective January 1, 2010. The application of more stringent rules in classifying impaired loans under FRS 139 also caused the bank’s loan loss reserve coverage of NPL to decline to 85% from 126% in FY2009.

Meanwhile, CIMB Bank benefits from the rebound in investment sentiments which consequently reversed part of the impairment losses charged in the previous years with respect to its securities held. Fee income was maintained at the same level while the bank’s expansion has resulted in an increase in overhead expenses by 11.8% compared with last year’s corresponding period. For the first nine months of FY2010, the bank’s cost to income ratio remained high at 55%, indicating room for further improvement.    

CIMB Bank has built up a strong capital position over the past few years through earnings retention as well as issuance of share capital and Tier 1 and Tier 2 capital instruments. As at end-9MFY2010, the bank’s reported core capital ratio and total capital ratio of 14.0% was in line with the Malaysian banking sector average. Meanwhile, MARC notes that CIMB Bank’s main subsidiaries reported improved results for the first nine months of FY2010. Notably, CIMB Thai Bank, which reported a net loss in FY2009, reported profits in 9MFY2010 thanks to loan quality improvement resulting in lower loan loss provisioning during the period.

The stable outlook on the ratings is underpinned by the bank’s adequate capitalisation, strong franchise, and MARC’s expectation that the bank will continue to deliver a consistent earnings performance. Moreover, improved credit and market risk management should position it well to cope with the challenges still inherent in its operating environment.

The full list of CIMB Bank’s rated corporate debt issues is as follows:

• RM4.0 billion Perpetual Non-Innovative Tier 1 Stapled Capital Securities affirmed at AA/stable
• RM1.0 billion Innovative Tier 1 Capital Securities affirmed at AA/stable
• RM1.5 billion Subordinated Bonds affirmed at AA+/stable

Contacts:
Anandakumar Jegarasasingam +603 2082 2250/ kumar@marc.com.my;
Lim Kok Seng +603 2082 2272 / kokseng@marc.com.my.