Wednesday, Nov 28, 2018
MARC has affirmed its AAA financial institution (FI) rating on Bank Pembangunan Malaysia Berhad (Bank Pembangunan). The rating carries a stable outlook.
The FI rating is solely premised on Bank Pembangunan’s status as a wholly government-owned development financial institution (DFI) which was incorporated to extend loans and financial support to specific industries promoted by the government. Government support to the DFI has been evident through government guarantees extended on borrowings as well as compensation provided for loss of interest income and credit loss.
Gross impaired loans (GIL) ratio stood at 12.1% as at end-2017 (2016: 15.0%). The lower GIL ratio was attributable to higher write-offs which lowered gross impairments in the technology, oil and gas, and maritime sectors. These three sectors had faced the brunt of the bank’s problematic loans, with about 64% or RM1.6 billion of their total exposure of RM2.6 billion having been classified as impaired in 2017. The bank recorded slightly higher impairments in the infrastructure loan portfolio, which had a GIL ratio of 5.2% as at end-2017 (2016: 4.8%).
Infrastructure loans have remained key to Bank Pembangunan’s growth, accounting for 74% of total loans approved of RM3.3 billion during 2017. Concentration risk is mitigated as the majority of existing infrastructure loans are related to government-initiated projects which benefit from direct or indirect government support. MARC notes that the group’s gross loans have continued contracting in recent years as loan growth has been offset by large repayments. Given the challenging economic conditions, MARC expects loan growth over the near term to remain muted.
Bank Pembangunan’s capital position as reflected by its Basel I core and risk-weighted capital ratios of 29.1% and 33.4% remained strong. The strong capital position offers a buffer against asset quality weakness. In 2017, the DFI’s profit before tax rose 56.7% y-o-y to RM325.3 million, mainly attributable to lower impairments in the year.
Bank Pembangunan’s funding profile remained largely supported by the government as reflected by government-guaranteed borrowings and deposits from the government and its related entities accounting for 34.4% and 39.9% of total funding.
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