[RAM] RAM Ratings reaffirms ratings of CIMB Group and domestic subsidiaries

RAM Ratings has reaffirmed CIMB Group Holdings Berhad’s (the Group) AA1/Stable/P1 corporate credit ratings (CCRs) and the AAA/Stable/P1 financial institution ratings (FIRs) of CIMB Bank Berhad, CIMB Islamic Bank Berhad and CIMB Investment Bank Berhad. The ratings of the entities’ debt facilities have also been reaffirmed (Table 1). The one-notch difference between CIMB Group’s long-term CCR and the AAA long-term FIRs of its Malaysian banking subsidiaries reflects the Group’s structural subordination as a non-operating holding company and moderate debt load at the holding company level.

The reaffirmations are premised on the Group’s strong ASEAN franchise and healthy capital and liquidity profile. The ratings also benefit from support uplift as we believe that extraordinary government support will be forthcoming in times of need, given the Group’s systemic importance in Malaysia. CIMB Group is the country’s second-largest bank by asset size and ranks among the top five banking groups in ASEAN by the same measure. On a standalone basis, we envisage pandemic-triggered asset quality challenges to continue to weigh on CIMB Group’s credit profile in the next 12-18 months. Downside risks will be greater for its operations in Indonesia and Thailand, where the road to recovery is anticipated to be longer.

Exposure to these countries (collectively 24% of total loans) and the recurrence of large corporate impairments across the Group’s key markets in recent years have kept its headline gross impaired loan ratio above peers’ (end-December 2020: 3.6%; peer average: 1.5%). With 15% of the Group’s loans benefiting from some form of repayment assistance – whether payment deferments or loan rescheduling/ restructuring – visibility on the Group’s underlying asset quality is still limited. We view positively the Group's portfolio derisking efforts and other strategic refinements under the Forward23+ strategy, which should improve its risk profile over time, albeit contingent on the strong execution of the strategy.

As with other banks, outsized impairment charges contributed to CIMB Group’s dismal earnings performance in 2020. Total provisioning costs – including management overlays and the update of forward-looking macroeconomic variables – erased some 81% of the Group’s pre-provision profit last year, leaving it with a pre-tax profit of RM1.5 bil (FY Dec 2019: RM6.0 bil). Owing to the still-uncertain recovery outlook, credit costs will stay elevated relative to CIMB Group’s trend average, although expected to be lower than that seen in 2020. This is expected to stifle earnings for another year.

On a more positive note, CIMB Group’s funding and liquidity profile and capitalisation remain its key rating strengths. The Group has prioritised growing current and savings account (CASA) deposits in the current low interest rate environment, which lifted its proportion of CASA deposits to 41% as at end-December 2020 (end-December 2019: 34%). We highlight that the six-month blanket loan moratorium in Malaysia would have also contributed to the accumulation of CASA deposits. As at end-December 2020, the liquidity coverage ratios of CIMB Group’s key banking subsidiaries were above 130% while their net stable funding ratios met the 100% regulatory minimum.

The Group’s capital position is healthy; its post-dividend common equity tier-1 (CET-1) capital ratio stood at 13.2% as at end-December 2020 (end-December 2019: 12.9%). The indicator has continued to chart slight y-o-y improvements in line with the Group’s ideal long-term CET-1 capital level of 13.0% – last year’s uptick was largely attributable to the smaller dividend payout for FY Dec 2020. The Group’s current capital level comfortably meets the higher capital requirement imposed by Bank Negara Malaysia on systemically important banks (CET-1 capital ratio of 8% for CIMB Group), which came into effect in January 2021.

Analytical contact
Loh Kit Yoong
(603) 3385 2493
kityoong@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my