RAM Ratings assigns AAA/P1 ratings to CIMB Islamic Bank

KUALA LUMPUR: RAM Ratings has assigned respective long and short-term financial institution ratings of AAA and P1 to CIMB Islamic Bank Bhd while reaffirming the AAA and P1 financial institution ratings of CIMB Bank Bhd and CIMB Investment Bank Bhd (CIMB IB).

Concurrently, the rating agency has also reaffirmed the AA1/P1 corporate credit ratings of CIMB Group Holdings Bhd as well as the AA1/P1 ratings of its RM6 billion Conventional and Islamic Commercial Papers/Medium-Term Notes Programme (2008/2038), along with the AA3 rating of its RM3 billion Subordinated Notes Programme (2009/2074).

All the long-term ratings have a stable outlook.

In a statement Monday, July 4, RAM Ratings said CIMB Bank, CIMB Islamic and CIMB IB collectively form the third-largest universal-banking group by assets in Malaysia, and are viewed to be systemically important.

“The AAA/Stable/P1 ratings reflect their integrated operations and close relationships, particularly the ability to leverage on distribution channels, treasury operations and risk-management systems, as well as their strong and entrenched franchise and market positions.

“Meanwhile, CIMB Group’s ratings are supported by the sound credit fundamentals of its subsidiaries and the Group’s expanding regional franchise,” it said.

The rating agency said CIMB Group was the fifth-largest banking group in Asean in terms of assets, adding that it enjoys a strengthening franchise in the region.

“In Malaysia, the group remains among the top players in consumer banking, and is a leader in investment-banking and stockbroking league tables.

“Meanwhile, the group’s domestic Islamic banking business, conducted via CIMB Islamic, has made strides in its financing and deposit-expansion strategy – Islamic financing facilities and deposits expanded 18% and 14%, respectively, in 2010,” it said.

RAM Ratings said while the Malaysian entities still contribute most (52%) of the group’s pre-tax profits, PT CIMB Niaga Tbk (CIMB Niaga) - its Indonesian commercial-banking subsidiary - was a crucial component in CIMB Group’s profit aspirations.

In FY Dec 2010, contributions from CIMB Niaga made up 34% of the group’s consolidated pre-tax profit of RM4.7 billion (FY Dec 2009: 21% and RM3.8 billion), it said.

CIMB Niaga is Indonesia’s fifth-largest bank by assets, and CIMB group’s largest overseas subsidiary.

Elsewhere, the group has a smaller presence in Thailand through CIMB Thai Bank Public Company Ltd (CIMB Thai, a subsidiary of CIMB Bank).

“Although CIMB Thai’s profitability has improved, it remains a marginal contributor of the group’s pre-tax gains,” said RAM Ratings.

Notably, CIMB Group’s banking entities continue to constitute the lion’s share of its profits; its asset-management and insurance division only accounted for 2% in fiscal 2010.

As at end-March 2011, the Group’s gross impaired-loan (GIL) ratio of 5.9% was better than its restated GIL ratio of 7.6% as at end-December 2009.

Meanwhile, its credit-cost ratio was kept low at 0.4% in FY Dec 2010, with one-off impairment adjustments made on its retained earnings - a result of having adopted FRS 139 for provisioning purposes.

Including the borrowings of CIMB Group Sdn Bhd (the intermediate holding company), CIMBGH’s adjusted gearing ratio had eased to 0.31 times as at end-December 2010 (end-December 2009: 0.4 times); its double-leverage ratio stood at 1.15 times.

The dividends received by CIMB Group from its Malaysian subsidiaries have been sufficient for its debt servicing needs.

To sustain capital for business growth, CIMB Niaga did not pay any dividends to its parent in fiscal 2010, and is expected to continue retaining its earnings this year for future growth. CIMB Niaga’s capital management plans also include the issuance of subordinated debt.

“Over the medium term, profit contributions from CIMB Group’s foreign operations are expected to surpass those of its Malaysian entities.

“Although the group’s geographical expansion strategy has aided its earnings diversification, RAM Ratings is mindful of the risks associated with rapid expansion in emerging markets,” said the rating agency.

“On this note, we will keep monitoring CIMB Group’s ability to manage these risks, as well as the extent of financial support required by its emerging-market entities,” it said.