MARC has affirmed its long-term and short-term corporate credit ratings of AA+/MARC-1 on CIMB Group Holdings Berhad (CIMB Group) and its issue rating of AA on the group’s RM10.0 billion Basel III-compliant Tier 2 Subordinated Debt Programme. The outlook on the ratings is stable. The one-notch rating differential between CIMB Group’s long-term corporate credit rating and its subordinated debt programme is in accordance with MARC’s methodology. 

CIMB Group is Malaysia’s second-largest and ASEAN’s fifth-largest banking group with total assets of RM558.8 billion as at end-June 2019. Its key subsidiaries are CIMB Bank Berhad(which also holds major stakes in CIMB Islamic Bank Bhd (CIMB Islamic) and Thailand-based CIMB Thai Bank Public Company Ltd (CIMB Thai)), CIMB Investment Bank Bhd (CIMB Investment) and Indonesia-based PT Bank CIMB NiagaTbk (CIMB Niaga). Of these, CIMB Bank remains the core operating entity, accounting for 85% of total consolidated assets as at end-June 2019 and a substantial portion of dividend income historically. CIMB Group’s long-term rating of AA+ reflects its subordination to CIMB Bank, which carries a AAA/Stable rating from MARC.

CIMB Group’s domestic loans accounted for 60% of total consolidated loans, followed by Indonesia (17%), Thailand (10%) and Singapore (8%) as at end-1H2019. The group’s overall loan growth rose by 6.9% y-o-y during the period compared to 3.3% y-o-y in 1H2018. The growth was mainly driven by domestic loans which grew by 7.0% y-o-y, higher than the domestic banking industry average of 4.2%. Its loan books in Thailand and Indonesia recorded strong growth of 18.4% and 6.3% y-o-y in 1H2019, reflecting in part the group’s aim to achieve higher contribution from its key overseas markets in line with its new five-year road map.

CIMB Group’s gross impaired loans (GIL) ratio stood at 3.12% as at end-June 2019 (2018: 2.91%). The increase was largely attributed to a large gross impaired financing related to the working capital segment of its Islamic banking subsidiary that the group expects to reverse over the near term. Its other key foreign subsidiaries registered lower GIL ratio y-o-y. Nonetheless, given that the overall asset quality for Thai and Indonesian banks remains weak, CIMB Thai and CIMB Niaga are expected to be prudent in growing their loan books. 

CIMB Group’s consolidated Common Equity Tier 1 capital ratio (CET1) increased to 12.9% from 12.6% at end-2018 largely due to reinvestments of dividends. Total capital ratio marginally increased y-o-y in 1H2019 as a result of additional available tier 1 capital.

In 1H2019, the group’s interest income grew on higher loan book while non-interest income grew due to stronger trading income. Excluding the one-off gain recorded in 2018, pre-tax profit increased by about 9% y-o-y in 1H2019. 

As a non-operating financial holding company, CIMB Group solely relies on dividend income which rose to RM3.3 billion in 2018 (2017: RM2.0 billion). Dividend payments from CIMB Bank remain sufficient to meet the holding company’s debt obligations. As at end-June 2019, the holding company’s debt-to-equity (DE) ratio was stable at 0.54x, although total borrowings have been on a rising trend since 2015, largely due to issuances of Basel III-compliant sub-debt issuances. However, given that these issuances are invested in similar capital instruments issued by its banking subsidiaries, the debt servicing costs under the issuances have been met by cash flows from its subsidiaries. Additionally, the holding company’s debt maturity profile has remained well spread, which reduces refinancing risks. 

The stable outlook reflects MARC’s expectation that the group’s overall credit profile will be maintained in the next 12 to 18 months. The ratings remain driven by the performance metrics of the group’s key subsidiaries, and therefore any change in their credit profile would impact CIMB Group.

Contacts: 
Raj Shankar, +603-2717 2956/ rajshankar@marc.com.my; 
Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my.