Bank merger credit positive for RHBCap and MBSB, uncertain for CIMB

by **Cals** Fri 18 Jul 2014, 01:04

Business & Markets 2014

Written by Levina Lim of theedgemalaysia.com

Thursday, 17 July 2014 09:55

KUALA LUMPUR: The proposed merger among CIMB Group Holdings Bhd, RHB Capital Bhd (RHBCap) and Malaysia Building Society Bhd (MBSB) is credit positive for RHBCap and MBSB, but its effect on CIMB is yet uncertain, said Moody’s Investor Service.

“The merger would be credit positive for RHBCap and MBSB because their credit profiles would likely benefit from CIMB’s support and being part of a larger and financially stronger banking group,” said Moody’s in a statement yesterday.

“RHBCap’s stand-alone credit quality would also benefit from CIMB’s larger distribution network and stronger funding profile,” it said.

The international rating agency said although the deal will also be credit positive for CIMB, the extent of the benefits will depend on the execution of the merger and the transaction terms.

“The transaction’s credit implication for CIMB will depend on its form (that is, a share swap or a combination of equity and debt), and the valuation of the transaction owing to the potential creation of goodwill,” said Moody’s.

As at March 31, 2014, CIMB’s common equity tier 1 (CET1) ratio was 9.6%, including the RM3.55 billion in equity it raised in January, which was lower than the industry average of 12.1%.

“Accordingly, the transaction will negatively affect CIMB’s credit strength if its post-transaction CET1 ratio declines materially from current levels,” said Moody’s.

It said from a stand-alone credit perspective, RHB Bank Bhd (A3 stable, D+/ba1 stable) is weaker than CIMB Bank Bhd (A3 positive, C-/baa1 stable), which constituted 81% of the group’s assets as at the end of March 2014, and PT Bank CIMB Niaga Tbk (Baa3 stable, D/ba2 stable), which constituted 17%.

“MBSB also looks weaker than CIMB, with an impaired loan ratio of 7.6% at the end of March 2014, versus CIMB’s 3.1% and RHBCap’s 2.5%. Moreover, MBSB’s impaired loan coverage ratio was 67% while RHBCap’s was 68%, both lower than CIMB’s 84%,” it noted.

This article first appeared in The Edge Financial Daily, on July 17, 2014.