MARC affirms CIMB Bank’s ‘AAA’ rating, stable outlook

PETALING JAYA: Malaysian Rating Corporation Bhd (MARC) has affirmed its “AAA” rating on CIMB Bank Bhd with a stable outlook.
MARC said in a statement last Friday that the stable outlook on the ratings reflects its expectation that CIMB Bank’s financial profile will commensurate with its ratings in the next 12 to 18 months.  
The rating agency noted that CIMB Bank’s high systemic importance as a key domestic bank, its well-established banking franchise and its strong domestic market position remain key rating drivers.
CIMB Bank is the third largest domestic bank with a total asset size of RM299.1 billion as at end-June 2016.
As with many of its banking peers, MARC said CIMB Bank’s largest loan exposure is to the property sector, making up about 42.4% of its loan portfolio in the first half (H1) of 2016.
While a sharp slowdown in the property industry could lead to an uptick in impaired loans, MARC noted that CIMB Bank’s exposure to the property sector is mitigated by the low average loan-to-value ratio of below 50% for the sector.
CIMB Bank’s loan growth slowed to 6.5% year-on-year in H1 2016 against 12.8% in the same period last year.
Its gross impaired loans (GIL) ratio rose to 1.91% as at end-June 2016 from 1.8% at end-2015, with the increase contributed largely by its Singapore branch which recorded a GIL ratio of 0.84%, up from 0.33%.
CIMB Bank’s capital position remained adequate despite a marginal decline from 2015 levels due largely to scheduled phase-in of regulatory deductions and phase-out of non-qualifying capital instruments. Its common equity Tier 1 (CET1) capital ratio stood at 11.1% as at end-June 2016, persistently lower than the domestic banking industry average which stood at 13.1% in the same period.
MARC does not envisage any challenges for CIMB Bank to comply with the Basel III requirement schedule and its capital position has been supported by its parent CIMB Group Bhd’s dividend reinvestment scheme which has had a reinvestment rate of above 70% since the initiation of the scheme in 2013.
However, MARC foresees CIMB Bank’s earnings in the near term will be weighed down by the impact from slower loan growth and higher impairment charges. In addition, stiff competition for deposits will put pressure on net interest margin.