MARC has assigned a preliminary rating of AAA_IS to CIMB Islamic Bank Berhad’s (CIMB Islamic) proposed RM10.0 billion senior Sukuk Wakalah Programme (Sukuk Wakalah). The rating outlook is stable. The rating on the Sukuk Wakalah reflects its seniority and is equalised to CIMB Islamic’s financial institution (FI) ratings which MARC has recently affirmed at AAA/MARC-1/Stable. The Sukuk Wakalah will provide an additional platform to raise liquidity for the bank should it need to strengthen its funding base.

Wholly -owned by CIMB Bank Berhad (CIMB Bank), CIMB Islamic is the Islamic banking arm of its parent bank with which it has close operational integration. Accordingly, the FI ratings on CIMB Islamic have been equalised to its parent CIMB Bank (AAA/Stable). As at end-September 2017, CIMB Islamic accounted for 20.2% of its parent’s consolidated loans and contributed 15.1% to CIMB Bank’s consolidated pre-tax profit. With total assets of RM77.2 billion, CIMB Islamic accounted for 12.3% of Malaysia’s Islamic banking system assets as at end-September 2017.

For 9M2017, the bank registered a financing growth of 13.6%, outpacing the industry average of 7.6%. Financing growth during the period was largely driven by the retail and SME segments which was in line with the group’s strategic direction. Gross impaired financing (GIF) ratio declined to 0.70% as at end-September 2017 from 0.98% as at end-2016, largely owing to write-offs and write-backs. The decline in GIF led to an improved financing loss allowance coverage ratio of 75.9% from 62.4% at end-2016.

CIMB Islamic’s Common Equity Tier 1 capital ratio declined to 13.0% as at end-September 2017 (end-2016: 14.7%), mainly due to higher risk-weighted assets (RWA) on financing expansion. Nonetheless, MARC expects CIMB Islamic’s capital position to remain sound, supported by internal capital generation and its restricted profit sharing investment account (RPSIA) as it has been in the past. As at end-September 2017, total RWA for credit risk absorbed by the parent increased to RM4.7 billion (2016: RM3.2 billion). Additionally, the bank would be able to utilise its existing Basel III Tier-2 Junior Sukuk Programme to support its capital position when required.

For 9M2017, net financial margin (NFM) declined to 1.73% largely due to stiff competition for financings and deposits. MARC views the prevailing intense competition among Islamic banks would continue to weigh on the bank’s NFM going forward. CIMB Islamic’s funding and liquidity profile remained sound, with a financing-to-fund ratio of 79.2% as at end-September 2017 (2016: 81.4%).

The ratings on CIMB Islamic and its programmes reflect the credit strength of its parent CIMB Bank given the strength of the parent-subsidiary relationship. Any revision in MARC’s assessment of this relationship and/or change in CIMB Bank’s ratings could lead to a change in the Islamic bank’s ratings.

CIMB Islamic’s existing sukuk issuances, rated and affirmed by MARC with a stable outlook are as follows:

• RM5.0 billion Tier 2 Junior Sukuk programme at AA+_IS
• RM2.0 billion Tier 2 Junior Sukuk programme at AA+_IS

Contacts:
Afeeq Amiri, +603-2717 2956/ afeeqamiri@marc.com.my;
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my.