MARC affirms rating on Bank Pembangunan

KUALA LUMPUR: MARC has affirmed a its AAA financial institution rating on Bank Pembangunan Malaysia Bhd, and its MARC-1 ratings on the bank's RM2bil Islamic/Conventional Commercial Papers programme.

The rating on Bank Pembangunan is premised on the government support the bank receives for promoting domestic economic development. MARC also noted that the group maintains a strong capital position, which mitigates increased asset quality weakness.

According to the ratings agency, Bank Pembangunan's gross impaired loans ratio increased to 15% over the year owing to rising impairments in the technology, oil and gas, and maritime sectors. 

However,as about 78% of the total exposure of RM3.2bil in the three sectors has been impaired, there is limited downside risk going forward.

Furthermore, the group's infrastructure loan portfolio, which accounts for 86.5% of the total loans of RM23.8bil, exhibits stable asset quality measures.

While it poses a concentration risk, the majority of the infrastructure loans benefit from direct or indirect government support, said MARC.

Bank Pembangunan also has a strong capital position, which buffers against asset quality weakness. 

"Bank Pembangunan’s capital position as reflected by Basel I core and risk-weighted capital ratios of 30.6% and 34% respectively remained strong," it said.

In 2016, loan impairment charges of RM630.6mil in 2016 was mitigated by a one-off gain of RM109.8mil from the disposal of loss-making subsidiaries including the liquidation of Syarikat Borcos Shipping Sdn Bhd.

As a result of the disposals and liquidation, net profit was boosted to RM231.2mil from a loss of RM12.7mil in the previous year.

The bank issued RM1.5bil from its existing murabahah Islamic medium-term notes programme to support its funding base, while MARC also noted that the bank's funding remained largely supported in the form of government-guaranteed borrowings and government deposits.