Moody’s: CIMB Bank’s creditworthiness showing signs of weakening

by **Cals** Fri 09 Oct 2015, 00:21

Moody’s: CIMB Bank’s creditworthiness showing signs of weakening

By Supriya Surendran / theedgemarkets.com | October 8, 2015 : 9:29 PM MYT

KUALA LUMPUR (Oct 8): [size=16]CIMB ([You must be registered and logged in to see this image.] Valuation: 1.65, Fundamental: 1.05) Bank Bhd’s standalone credit worthiness is showing some signs of weakening, according to Moody’s Investors Services’ newly-released report on the bank titled, ‘Weaker Profitability, Rising Asset Risk Will Limit Internal Capital Generation’.

However, the credit rating agency noted CIMB’s A3 bank deposit and senior unsecured debt ratings, and the positive outlook on the ratings remain supported by the very high likelihood of systemic support for the bank, if needed.

As such, it had on Oct 6, affirmed CIMB Bank’s long term deposit and senior unsecured debt ratings of A3, while downgrading its baseline credit assessment (BCA) by one notch to baa2.

“CIMB Bank’s capitalisation is the lowest among large Malaysian banks, and it further weakened in the first half of 2015 (1H15), due to growth in risk-weighted assets, one-off restructuring costs and an increase in capital deductions for loan-loss reserve shortfalls,” says Moody’s vice president and senior analyst, Simon Chen, in a statement in conjunction with the release of the report.

“In the absence of any significant capital raising, we expect the bank's common equity tier 1 (CET1) ratio will remain below those of its Malaysian peers, some of which have announced rights issues to boost their capital buffers in 2H15,” he added.

Moody’s noted that as of June 2015, CIMB Bank's adjusted CET1 ratio on a consolidated basis was 9.4%, down from 9.9% at end-2014.

While one-off costs from restructuring will not recur, Moody's said further deductions could continue to pressure capital ratios, if loan performance deteriorates.

CIMB Bank's loan and revenue growth is also slowing in its main markets of Malaysia (A3 positive) and Thailand (Baa1 stable), said Moody’s.

“In Malaysia, falling prices for crude oil, palm oil, natural gas and rubber, have reduced loan demand from commodity exporters, while a depreciating ringgit is negatively affecting consumer spending,” it said.

Moody's expects loan growth for the bank in Malaysia to slow to the mid- to single-digit in 2015, compared to 13% in 2014, as net interest margins in the country narrow due to an increased cost of deposit.

“In addition, a further weakening of the Malaysian ringgit could affect the debt serviceability of households and corporates,” said Moody’s.

As for Thailand — the only market apart from Malaysia that contributes more than 10% of CIMB Bank's total net interest income, loan growth will slow to single digits in 2015, due to the weaker Thai economy, said Moody’s.

Hence, it expects a rise in NPLs in Thailand, driven by weak economic conditions and high household leverage.

Already, the bank's NPL ratio in Thailand has risen to 4.1% of total loans in the first half of 2015, from 3.3% at end-2014, it added.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)

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