MARC has confirmed its AA+IS/Stable rating on CIMB Islamic Bank Berhad's (CIMB Islamic) RM2.0 billion Tier-2 Junior sukuk programme in connection with the bank's issuance of its third tranche sukuk under the programme. There are two prior issued tranches of sukuk under the same programme: RM300 million sukuk issued in September 2009 and RM250 million sukuk issued in April 2011.

The programme rating is one notch below that of the bank's financial institution (FI) rating of AAA. The sukuk qualify as supplementary capital under Malaysia's existing regulatory capital rules.

MARC has confirmed that the bank's FI and sukuk ratings and outlook remain unchanged as the financial metrics of the bank and its parent CIMB Bank Berhad (CIMB Bank), to which CIMB Islamic's rating is aligned, remain in line with the rating agency's expectations for the current rating category. The ratings continue to be substantially underpinned by the strength of CIMB Bank's domestic banking franchise and stable asset quality, coupled with a track record of continuous growth in earnings and strong capitalisation. MARC recognises CIMB Islamic as an important part of CIMB Group's overall franchise.

CIMB Islamic's standalone credit profile has remained in line with MARC's expectations. Its recent operating performance has been characterised by relatively stable pre-provision earnings.

The bank's pre-tax pre-provision profits were marginally lower at RM137.7 million for the first three months of 2012 (1QFY2012) compared to RM138.2 million in the same quarter a year ago. It posted a 10.9% increase in its pre-tax profit for 2011. Its gross impaired financing remained low at 1.02% as a percentage of total financing as at end-March 2012. Its provisioning coverage of impaired financing is strong at 157.0% as of the same date.

CIMB Islamic's significantly lower newly impaired financing during 1QFY2012, its low overall impaired financing as a percentage of its total financing and subdued financing growth during the quarter suggest prudent risk appetite and sound credit risk management. The bank's funding and liquidity profile has strengthened as deposit growth outpaced financing growth. Its favourable current and savings accounts (CASA) deposits growth of 17.9% (year-on-year) during 1QFY2012, in MARC's view, evidences the overall strength of the CIMB franchise. The Islamic bank's risk-weighted capital ratio was 13.7% and core capital ratio was 9.9%, taking into account quarterly net profits. The additional issuance of tier-2 sukuk will increase the bank's capital cushion.

CIMB Bank's high proportion of retail loans in its balance sheet and healthy CASA growth should remain supportive of the overall stability of its core earnings. Its declining level of new loan impairments and impaired loans suggest moderated credit risk appetite and improved resilience under difficult conditions. MARC notes that impaired loans at CIMB Bank have decreased slightly to 3.93% of gross loans at end-March 2012 from 3.95% as of end-December 2011, with a provisioning coverage of 78.7%.

CIMB Bank posted strong full-year results for 2011, with pre-tax profit up 35.4% to RM3.2 billion compared to a year ago. For 1QFY2012, the bank's pre-tax profit increased by 24.6% compared to the corresponding period of the preceding year. As of March 31, 2012, the bank's risk-weighted capital ratio was 15.4% and the core capital ratio was 13.4%, taking into account quarterly net profits and proposed dividends.

MARC intends to conduct its full yearly review of CIMB Islamic’s and CIMB Bank's ratings by the end of the fourth quarter of 2012.

Contacts:
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my;
Sharidan Salleh, +603-2082 2254 / sharidan@marc.com.my.