MARC affirms 'AAA' rating for Bank Pembangunan despite higher loan impairments in riskier sectors

PETALING JAYA: Malaysian Rating Corp Bhd (MARC) has affirmed its “AAA” rating on Bank Pembangunan Malaysia Bhd with a “stable” outlook, despite higher impairment of loans in riskier sectors.
The ratings on the bank’s Islamic/Conventional Commercial Papers Programme of up to RM2 billion have also been affirmed at “MARC-1IS/MARC-1” respectively.
The rating agency said the rating affirmation is premised on Bank Pembangunan’s status as a wholly government-owned development financial institution, which was incorporated to support domestic economic development activities by extending loans and financial support to specific industries promoted by the government.
“Government support to the group has been evident historically by way of guarantees extended on borrowings as well as compensations provided for loss of interest income and credit loss on some government-directed loans. The group maintains a strong capital position, which mitigates increased asset quality weakness,” MARC said in a statement today.
Bank Pembangunan’s gross impaired loans ratio rose to 15% as at end-2016 from 11.1% a year ago, due to higher impairments in riskier sectors, namely technology, oil and gas, and maritime.
“As about 78% or RM2.5 billion of the total exposure of RM3.2 billion to the three sectors has been impaired, downside risk to the group’s asset quality is likely to be limited going forward.”
A sizeable increase in loan impairment charges of RM639.6 million in 2016 also dragged down the bank’s profitability. However, a one-off gain of RM109.8 million from the disposal of its loss-making subsidiaries including the liquidation of subsidiary Syarikat Borcos Shipping Sdn Bhd boosted its net profit to RM231.2 million from a net loss of RM12.7 million in the previous year.
While the bank has also tightened its lending criteria, which has led to loan base contraction in recent years, MARC said its infrastructure loan portfolio, which accounted for 86.5% of total loans of RM23.8 billion, continued to exhibit stable asset quality measures.
“The sizeable infrastructure loan segment poses concentration risk. This is mitigated by the fact that the majority of infrastructure loans is related to government-initiated projects that benefit from direct or indirect government support.”
MARC said Bank Pembangunan’s capital position remained strong, as reflected by Basel I core and risk-weighted capital ratios of 30.6% and 34.0% respectively.
Bank Pembangunan’s funding profile remains largely supported by the government as reflected by government-guaranteed borrowings and deposits from the government and its related entities accounting for 34.8% and 45.0% respectively of total funding. In March 2017, the bank issued RM1.5 billion from its existing Murabahah Islamic Medium-Term Notes programme to support its funding base.