MARC has affirmed its AAA financial institutions rating on Bank Pembangunan Malaysia Berhad (BPMB).  In addition, MARC has also affirmed its MARC-1ID/ MARC-1 programme ratings on BPMB’s up to RM2.0 billion Islamic and/or Conventional Commercial Papers (CP) Programme with a stable outlook. 

The ratings continue to reflect support uplift from the Government of Malaysia on account of BPMB’s status as a wholly-owned development finance institution and its role in financing infrastructure projects and identified sectors for Malaysia’s development. The government’s capacity and willingness to provide substantial ongoing support to BPMB’s operations is evidenced by government guarantees extended in favour of the bank’s lenders, the provision of an infrastructure support fund which can be used to mitigate credit losses on infrastructure loans and the mandates to manage additional funds for the maritime and technology sectors on behalf of the government. The ratings also reflect the bank’s sound capitalisation levels, adequate earnings and risk management, and satisfactory funding and liquidity.

BPMB’s loan portfolio exposure is characterised by high levels of borrower and sector concentration in the highly capital-intensive infrastructure, maritime and high technology sectors. The higher credit risk profile of bank’s borrowers is largely reflected its gross impaired loan ratio of 11.4% which is significantly higher than the Malaysian banking industry’s gross impaired loan ratio of 2.7% as at the end of 2011. The bank saw its gross impaired loan ratio increasing to 11.06% at end 2010 compared to its reported gross non performing loan ratio of 4.15% at end-2009 with adoption of FRS139’s more stringent impairment rules.

Nonetheless, MARC expects any further asset quality deterioration to be limited in the next 12 to 18 months given the recent impairment in the delinquency profile of the bank’s loan portfolio. Amounts past due but impaired decreased to RM6.1 million (FY2010: RM254.9 million) as at end December 2011. Based on BPMB’s internal credit ratings, the proportion of high risk loans in the bank’s loan book has reduced considerably from end-2010 levels. Mitigating the low granularity and relatively high credit risk indicators of its loan book is the observation that a high proportion of its loans to government-initiated projects, estimated to be about 70.0% of BPMB’s lending, carry some form of government support. 

FY2011 saw net profit rising by 19.9% from FY2010 due to lower impairment provisioning during the year and higher net interest income.  Impairment provisioning decreased from 2010 levels following the adoption of FR139 by RM107.9 million.  Net interest income (including net finance income from the Islamic banking business) grew 5.6% to RM827.3 million (FY2010: 783.2 million) fuelled by loan growth. However, MARC notes compression on the bank’s net interest margin as a result of its increased funding costs. In addition to the bank’s consistent pre-impairment profitability, the bank’s operating performance also benefited from a 15.2% year-on-year decline in overhead expenses. The bank achieved an improved cost–to-income ratio of 7.13% in 2011 as well as higher return on assets and equity measures. 

MARC continues to view BPMB’s fairly strong capitalisation as an important credit strength. The Bank’s core capital ratio strengthened to 33.04% (FY2010: 30.85%), attributed to internal capital generation and lower growth of risk assets.  The strength of BPMB’s capitalisation is expected to remain within historic norms in light of slowing trend of loan approvals and loan growth, and the bank’s adequate internal capital generation.

The stable outlook reflects MARC expectations of BPMB’s continued satisfactory earnings performance, loan losses remaining under control and continued strong government support for its mandated operations.

Contact:
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.