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20 Dec | Thursday
RAM Ratings reaffirms CIMB Group’s ratings
RAM Ratings has reaffirmed CIMB Group Holdings Berhad’s (the Group) AA1/Stable/P1 corporate credit ratings (CCRs). The one-notch difference between CIMB Group’s long-term 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 end-September 2018. 
 
We have concurrently withdrawn the P1 ratings of CIMB Group’s proposed RM6.0 billion Islamic CP Programme and its RM6.0 billion Conventional/Islamic CP/MTN Programme (2008/2038) following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. 
 
Issue ratings of CIMB Group
  Rating
RM6.0 billion Conventional/Islamic MTN Programme (2008/2038) AA1/Stable
RM3.0 billion Subordinated Notes Programme (2009/2074) AA3/Stable
RM6.0 billion Conventional CP Programme (2015/2022) P1
RM10.0 billion Additional Tier-1 Capital Securities Programme A1/Stable

As the fifth-largest banking group in the ASEAN region (by assets), 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% and 46 bps (annualised) in 9M fiscal 2018 (full-year fiscal 2017: 3.4% and 69 bps). 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. 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% as at end-September 2018 (end-December 2017: 84%). 

 
CIMB Group’s reported pre-tax profit of RM5.7 billion in 9M fiscal 2018 includes gains on partial disposals of its asset management and overseas stockbroking businesses (RM1.1 billion in total). Excluding the one-off gains, its core pre-tax profit of RM4.6 billion (equivalent to an annualised ROA of 1.2%) 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 non-interest income and containing credit costs will be key to lifting the Group’s profitability.
 
CIMB Group’s funding profile is healthy, with its loans-to-funds and loans-to-deposits ratios standing at a respective 82% and 92% as at end-September 2018; its wholesale funding sources are diversified. The Group’s liquidity coverage ratio is well beyond 100%. 
 
At 12.3% as at end-September 2018 (end-December 2017: 12.2%), CIMB Group’s common equity tier-1 (CET-1) capital ratio was comfortable. The adoption of MFRS 9 on 1 January 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 (+29 bps to CET-1 capital ratio). CIMB Group’s capital accumulation is also supported by a well-received dividend reinvestment scheme.
 
 
Analytical contact
Lim Yu Cheng, CFA, FRM
(603) 7628 1188
yucheng@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
 
Date of release: 20 December 2018
 
 
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
 
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
 
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
 
Published by RAM Rating Services Berhad
Ó Copyright 2018 by RAM Rating Services Berhad
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