KUALA LUMPUR: Moody's Investors Service has affirmed all ratings and assessments of CIMB GROUP HOLDINGS BHD, and its subsidiaries CIMB Bank Bhd and CIMB Islamic Bank Bhd. The outlook on the ratings remains stable.
The rating agency said on Friday the ratings of the other rated subsidiaries in CIMB Group -- PT Bank CIMB Niaga Tbk (Baa2 stable, ba1), CIMB Thai Bank Public Company Ltd (Baa2 positive, ba2) and CIMB Investment Bank Berhad (A3 stable) -- remain unchanged and are not affected by this rating action.
In its rating rationale, Moody's said the affirmation of CIMB Bank's A3 ratings takes into account the bank's baa2 Baseline Credit Assessment (BCA) and Moody's expectation of a very high probability of government support for the bank in times of need.
“The stable outlook reflects Moody's view that the credit fundamentals of the bank will remain robust over the next 12-18 months.
“The bank's baa2 BCA reflects its improved capitalisation, stabilising asset quality and robust liquidity over the three years to 2018. At the same time, the BCA also considers the increasingly challenging operating conditions in the bank's key markets that are likely to weigh on its asset quality and profitability,” it said.
Moody's said the bank's Common Equity Tier 1 (CET1) ratio has consistently improved since 2016, driven by the group's efforts to improve risk-adjusted returns and optimise risk-weighted assets.
Its CET1 ratio improved to 13.1% at the end of June 2019 from 11.6% at the end of 2016.
However, the company's gross impaired loan ratio increased slightly to 2.5% at the end of June 2019 from 2.3% a year earlier, and Moody's expects the ratio could increase further due to the worsening macro environment.
The (P)Ba1 subordinated MTN rating is positioned two notches below CIMB Bank's baa2 adjusted BCA and CIMBGH's baa2 notional BCA, in line with Moody's standard notching guidance for subordinated debt, with loss triggered at the point of non-viability on a contractual basis.
CIMB Islamic Bank
The affirmation of CIMB Islamic's A3 rating takes into account Moody's stable view of the bank's baa2 BCA and Moody's expectation of a very high probability of affiliate and government support.
The stable outlook reflects Moody's view that the credit fundamentals of the bank will remain robust over the next 12-18 months.
CIMB Islamic's baa2 BCA takes into account its strong domestic franchise, underpinned by its position as the second largest Islamic bank in Malaysia by assets and deposits, as well as its stable profitability and robust liquidity.
CIMBGH's Baa1 rating reflects the structural subordination of the group's holding company creditors relative to CIMB Bank's creditors.
The Baa1 rating also takes into account the group's standalone intrinsic financial strength -- or baa2 notional BCA -- and Moody's assumption of the government's very strong support for the group.
CIMBGH's standalone intrinsic financial strength of baa2 is driven by the consolidated financial strength of its key banking subsidiaries, namely (1) CIMB Bank, which held 84% of the group's loans; and (2) CIMB Niaga (16%) at the end of June 2019.
Moody's expectation of the government's very high support for CIMB Group and its key subsidiaries, namely CIMB Bank and CIMB Islamic, is driven by the group's significant share of domestic banking system deposits (15% in June 2019), and the 43% indirect government stake in its parent holding company CIMBGH through Khazanah Nasional Bhd (24%), the Employees Provident Fund (13%) and Kumpulan Wang Persaraan (6%) as of August 2019.