MARC Ratings has affirmed its financial institution rating of AAA on Bank Pembangunan Malaysia Berhad (BPMB). The rating agency has concurrently affirmed its AAA_IS rating on BPMB’s RM5.0 billion Islamic Medium-Term Notes Programme. The outlook on both ratings is stable. 

The affirmed ratings continue to incorporate MARC Ratings’ expectations of a high probability of government support premised on the government’s 100% stake in BPMB and the bank’s critical role in supporting the government’s developmental goals for the country. Government support has been demonstrated by the provision of guarantees on borrowings and grants to cover credit losses as well as compensation for losses on problematic loans/financing. The ratings also consider the government’s role in providing strong regulatory oversight and appointing board members and key management personnel to the bank. 

BPMB’s financing book was broadly stable at RM18.2 billion as at end-June 2023 following a 5.6% y-o-y contraction in 2022 which was due to large repayments and prepayments, particularly from its toll road portfolio during the year. Nonetheless, infrastructure financing accounted for a substantial 89.9% of the bank’s loans/financing as at end-1H2023, with road/highway financing remaining the largest sub-sector. Concentration risk is mitigated by the fact that about 72.4% of total infrastructure financing is for government-related projects, which carry some form of government support.   

MARC Ratings also notes that BPMB’s guarantee portfolio had expanded to RM4.5 billion as of end-June 2023 from RM1.8 billion in the prior year with the completion of the merger with Danajamin Nasional Berhad (Danajamin). This has boosted fee income as well as investment income from an increase in securities investments from Danajamin’s balance sheet, that contributed to a 49% y-o-y increase in BPMB’s pre-tax profit to RM379.3 million in 2022 despite higher impairment charges. In 1H2023, BPMB recorded pre-tax profit of RM243.3 million.

BPMB’s gross impaired financing ratio remained high at 11.4% as at end-June 2023 (end-2022: 11.4%), which is reflective of its developmental mandate and the higher-risk credits it generally underwrites. Borrowers under relief measures remained high at 39% of BPMB’s total financing as of end-June 2023 (2022: 36%). MARC Ratings believes that BPMB’s asset-quality metrics could weaken in the next 12-18 months when relief programmes wind down. However, the bank still has adequate loss absorption capacity with the current cushion of credit impairment reserves; loan/financing loss provision ratio remained sound at 184.2% as at end-June 2023. 

BPMB’s capitalisation remains adequate given its risk profile. As at end-June 2023, the core capital ratio and risk-weighted capital ratio were around 30.0% and 33.0%, providing a comfortable cushion against potential asset quality deterioration. MARC Ratings expects capital support from the government to be forthcoming should the need arise. The rating agency views positively BPMB’s access to the capital market and deposits and/or funding from government-related bodies. 

BPMB remains largely reliant on wholesale funding (100% of customer deposits or 54.7% of total non-equity funding as at end-June 2023). However, around 47% of the customer deposits comprise government and statutory deposits, which are considered stable. In order to better match its asset and liability structure, BPMB has set an optimised target of 30:70 between short-term funding and medium- and long-term funding. As at end-June 2023, the funding mix stood at 36:64. Funding risk is partially mitigated by the bank’s strong liquidity coverage, with its liquidity coverage ratio and net stable funding ratio standing at 300.0% and 122.5%, well above the regulatory limit of 100%.

Fahmi Hawari, +603-2717 2946/ fahmi@marc.com.my 

Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my 

Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my