Tuesday, Oct 24, 2017
MARC has affirmed its AAA financial institution (FI) rating on Bank Pembangunan Malaysia Berhad (Bank Pembangunan). Concurrently, its ratings on the bank’s Islamic/Conventional Commercial Papers (CP) Programme of up to RM2.0 billion were affirmed at MARC-1IS/MARC-1. The ratings carry a stable outlook.
The affirmed FI rating is premised on Bank Pembangunan’s status as a wholly government-owned development financial institution (DFI) which was incorporated to support domestic economic development activities by extending loans and financial support to specific industries promoted by the government. Government support to the group has been evident historically by way of guarantees extended on borrowings as well as compensations provided for loss of interest income and credit loss on some government-directed loans. The group maintains a strong capital position, which mitigates increased asset quality weakness.
Gross impaired loans (GIL) ratio rose to 15.0% as at end-2016 (2015: 11.1%) as impairments in riskier sectors, namely technology, oil and gas, and maritime grew during the year. As about 78% or RM2.5 billion of the total exposure of RM3.2 billion to the three sectors has been impaired, downside risk to the group’s asset quality is likely to be limited going forward. The group has also tightened its lending criteria, which has led to loan base contraction in recent years (2016: negative 4.1%). On a positive note, the group’s infrastructure loan portfolio, which accounted for 86.5% of total loans of RM23.8 billion, continued to exhibit stable asset quality measures. The sizeable infrastructure loan segment poses concentration risk. This is mitigated by the fact that the majority of infrastructure loans is related to government-initiated projects that benefit from direct or indirect government support.
Bank Pembangunan’s capital position as reflected by Basel I core and risk-weighted capital ratios of 30.6% and 34.0% respectively remained strong. The strong capital position offers a buffer against asset quality weakness. The group’s profitability was dragged down by a sizeable increase in loan impairment charges of RM639.6 million in 2016 (2015: RM393.1 million). However, a one-off gain of RM109.8 million from the disposal of its loss-making subsidiaries including the liquidation of subsidiary Syarikat Borcos Shipping Sdn Bhd (Borcos) boosted net profit to RM231.2 million from negative RM12.7 million in the previous year.
Bank Pembangunan’s funding profile remained largely supported by the government as reflected by government-guaranteed (GG) borrowings and deposits from the government and its related entities accounting for 34.8% and 45.0% respectively of total funding. In March 2017, the bank issued RM1.5 billion from its existing Murabahah Islamic Medium-Term Notes programme to support its funding base.
The stable outlook reflects MARC’s expectations that government support for Bank Pembangunan will remain strong. Downward rating pressure could be triggered if government support assumptions weaken and/or if the group’s financial metrics deteriorate sharply.
Afeeq Amiri, +603-2717 2956/ email@example.com;
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