MARC has assigned its MARC-1ID/MARC-1 ratings to Bank Pembangunan Malaysia Berhad’s (BPMB) proposed Islamic Commercial Papers and/or conventional Commercial Papers programme of up to RM2.0 billion in nominal value. At the same time, MARC has also affirmed BPMB’s financial institution rating of AAA. The rating outlook is stable. The ratings reflect BPMB’s status as a wholly government-owned development financial institution (DFI), held through the Minister of Finance Incorporated (99.99%) and the Federal Lands Commissioner (0.01%). The ratings also consider BPMB’s long track record of managing government-borrowed funds for lending towards key development sectors, which suggests a high probability of regulatory and government support to BPMB to maintain its strategic role in the Malaysian economy. MARC’s support assumption is predicated on instances of past demonstration of support by the government to BPMB in the form of government guarantees on borrowings, compensation for specific projects and capital support should the need arise. This assumption of a very high probability of timely financial support further enhances BPMB’s already fairly strong long-term standalone credit rating.

Focused on financing the infrastructure, maritime and high technology sectors, BPMB has historically benefited from multilateral and government-to-government concessional funding. However, the supply of concessional funding has declined over the past years due to Malaysia’s improving per capita income. This decline in concessional funding has led the DFI to increasingly tap the capital markets. Moving forward, BPMB has expressed its intention to broaden its funding profile by way of including deposits from more government-linked companies and also public limited companies as well as interbank market, subject to regulatory approval.

BPMB’s lending exposures reflect its development mandate to provide financing especially for the infrastructure sector. Its long-tenure and large ticket infrastructure loans expose it to higher credit and loan concentration risk. Mitigating this concern to some extent is the observation that 77.0% of BPMB’s lending as at March 31, 2010 relate to government-initiated projects which carry some form of government support. This is borne out in the development bank’s benign historical experience on borrower loss-given-default. Additionally, MARC notes that the capitalisation of BPMB is strong, providing sufficient capacity to comfortably absorb credit costs associated with large ticket lending towards the infrastructure sector.

For financial year-end December 31, 2009 (FY2009), BPMB recorded lower profitability on account of higher specific allowance on non-performing loans during the year as well as the management’s proactive action to book provisions for potential future delinquencies arising from its current performing loan book. Consequently, post-tax return on assets (ROA) registered lower at 1.47% (FY2008 post-tax ROA after adjusting for a one-off gain: 2.83%). Meanwhile, for 1H2010, BPMB charted an annualised post-tax ROA of 2.13%, showing positive performance attributed to the growth of its loan portfolio in tandem with the improvement in BPMB’s operating environment. BPMB’s profitability appears to be adequate to maintain its capital strength while fulfilling its development role.

The bank’s risk-bearing capacity is strong as reflected by its Tier-1 capital ratio and risk weighted capital ratio (after deducting proposed dividend) of 30.09% and 31.12% respectively, comprised mainly of paid-up share capital and retained earnings. BPMB’s capitalisation provides a substantial buffer against deterioration in asset quality and the concentration risk arising from BPMB’s infrastructure loan book. As at end-June 2010, BPMB’s capital ratios strengthened further to 31.0% (Tier-1 CAR) and 32.3% (RWCR). In addition to a stable earnings profile, MARC also expects BPMB to continue to execute its mission as a key development financial institution successfully, therefore earning the continued financial support of the government.

Contacts:
Ahmad Rizal Farid, +603-2082 2253/ arizal@marc.com.my;
Lim Kok Seng, +603-2082 2272/ kokseng@marc.com.my;
Anandakumar Jegarasasingam, +603-2082 2250/ kumar@marc.com.my.