RAM reaffirms CIMB Group’s ratings

KUALA LUMPUR: RAM Ratings has reaffirmed CIMB Group Holdings Berhad’s AA1/Stable/P1 corporate credit ratings (CCRs).

The one-notch difference between CIMB Group’s longterm CCR and the long-term AAA financial institution ratings of its Malaysian banking subsidiaries reflects its structural subordination as a non-operating holding company and moderate company-level debt load.

The Groups’ company-level double-leverage and gearing ratios were 1.10 times and 0.17 times, respectively, as at endSeptember 2018.

“We have concurrently withdrawn the P1 ratings of CIMB Group’s proposed RM6 billion Islamic CP Programme and its RM6 billion Conventional/ Islamic CP/MTN Programme (2008/2038) following the expiry of the commercial papers. The AA1 rating of the MTNs and the Group’s other issue ratings have been reaffirmed,” it explained in a statement.

As the fifth-largest banking group in the Asean region by assets, RAM said CIMB Group has a commendable universal banking franchise and a footprint in all 10 countries in the region.

“Thanks to improvement in Indonesia, the group’s gross impaired loan (GIL) ratio and credit cost ratio had eased to a respective 3.1 per cent and 46 bps (annualised) for its first nine months of the fiscal 2018 (9M18).

“Its asset-quality indicators, however, are still weaker than that of domestic peers due to the higher credit risk environment in Indonesia and Thailand vis-à-vis Malaysia.

“While a more volatile macro environment could introduce some pressure, the impact will be moderated by the resilience of the Group’s domestic portfolio,” RAM opined,

Meanwhile, the implementation of Malaysian Financial Reporting Standards 9 (MFRS 9) had boosted CIMB Group’s GIL coverage ratio -- inclusive of regulatory reserves -- to 107 per cent as at end-September 2018.

To note, CIMB Group’s reported pre-tax profit of RM5.7 billion in 9M18 includes gains on partial disposals of its asset management and overseas stockbroking businesses.

Excluding the one-off gains, its core pre-tax profit of RM4.6 billion was largely unchanged y-o-y, as a sharp decline in impairment charges was negated by revenue pressure.

Pressure had stemmed from margin compression (largely attributable to Indonesia) and weaker non-interest income (mainly from Malaysia) given a slowdown in capital market activities after the 14th general election. Full recovery of noninterest income and containing credit costs will be key to lifting the Group’s profitability.

RAM said CIMB Group’s funding profile remains healthy, with its loans-to-funds and loansto-deposits ratios standing at a respective 82 and 92 per cent as at end-September 2018; its whole sale funding sources are diversified.

The Group’s liquidity coverage ratio is well beyond 100 per cent.

“At 12.3 per cent as at endSeptember 2018, CIMB Group’s common equity tier-1 (CET-1) capital ratio was comfortable. The adoption of MFRS 9 on January 1, 2018 had shaved 0.7 percentage points off the ratio, but the group had subsequently regained its capital strength through profit accretion and the aforementioned disposals,

“CIMB Group’s capital accumulation is also supported by a well-received dividend reinvestment scheme.”