CIMB supports China’s rating agency Dagong

BEIJING: CIMB Bank Bhd, the commercial banking arm of CIMB Group
Holdings Bhd, has been accorded a AA long-term local currency issuer
rating and AA- for its long-term foreign currency rating by China’s
Dagong Global Credit Rating Co Ltd, becoming the first corporation from
Southeast Asia to be rated by an independent Chinese rating agency as
the banking group seeks to support Dagong in its bid to champion the
needs of Asian corporates for their own voice in credit rating.

In
a glitzy ceremony held at the China World Hotel last Friday, CIMB Group
CEO Datuk Seri Nazir Razak said it was imperative for Asia to have its
own voice in the international credit rating arena as a tool to support
Asian companies in raising funds to spearhead the global economy in this
era of the Asian century.

He said Asia, despite being the
custodian of most of the world’s savings and offering the most
attractive investment opportunities, remains extremely dependent on
Western financial intermediation.

“Let me use the example of our
debt capital markets to address this issue. The combined value of Asian
bond markets is about US$5.3 trillion (RM15.8 trillion), a 25-fold
increase since the Asian financial crisis, yet we find that the
intra-Asian bond investment is still low — over 60% of these
transactions go towards investments in US or European bonds, with only
5% invested in Asian bonds. In contrast, about 70% of EU bond
transactions are for European bonds,” he said.

The international
credit ratings industry has long been dominated by Western credit
rating firms namely Moody’s, Standard & Poor’s and Fitch Ratings —
the “Big 3”. This domination of Western financial intermediation,
according to Nazir, will not just incur high transaction costs for Asian
companies and sovereigns to raise funds, but also it influences the
process and whether Asia is given a fair hearing in financial decision
making.

Nazir stressed that the implications of the current
practice whereby Asia does not have its own “power” in determining its
own credit worthiness is far-reaching as it not only affects sovereign
bond issuances but also corporates. This is because they find its
expensive to raise capital compared with their Western counterparts due
to the low level of sovereign ratings accorded to Asian countries and
corporate issuers.

“The effects are amplified for banks in
particular — under Basel II, banks must allocate capital proportionate
to their risk-weighted assets and since Asian assets are generally given
higher risk weights by Western ratings agencies, Asian banks
effectively have to set aside more capital. This is despite the fact
that most Asian banks are on far more solid foundations than those in
the West,” he explained.

In the aftermath of the global financial
crisis and since the meltdown of US’ subprime mortgage market, the
collapse of Lehman Brothers, one of the largest financial institutions
in the world for decades, and the current debt crises affecting
sovereigns in the European Union, the world is desperately in need of
objective and independent credit rating services, according to Dagong
chairman and president Guan Jianzhong.

He said Dagong is
confident and capable of providing authoritative and impartial credit
information services for the international community, maintaining the
security of the international financial system and making a positive
contribution to the globalisation of the credit economy.

On why
he chose Dagong to give a credit rating to CIMB despite the fact that
Dagong’s operations are centred in China and it has never rated any
corporates outside the republic, Nazir said the former certainly has the
foundations to become Asia’s leader in the credit rating arena and CIMB
Group is pleased to be the first from Asean to extend its support to
Dagong and by extension, China’s leadership in this field among Asian
countries.

“We have been a strong advocate for the need of Asian
voice in credit rating globally. So when you think about Dagong we are
really stepping forward as the first Asian corporate to really say that
Dagong has the foundation to be the Asian voice for global rating. We
would like to see eventually General Motors, Goldman Sachs, and so on
rated by Dagong as well as S&P and Moody’s. I think it is important
that investors, when they make their investment decisions, are able to
hear rating evaluations from different perspectives,” he said.

With
the AA credit rating accorded to CIMB by a Chinese credit rating agency
and with ratings accorded by Standard and Poor’s, Moody’s and Fitch
Rating, it would be easier for CIMB to raise funds and tap the Chinese
capital market. However, according to Nazir, CIMB’s strategy has always
been on focusing to become Asean’s leading universal banking group,
hence it will focus on its “home market”.

“CIMB is an Asean bank.
We will always be an Asean bank, and therefore not an Asian bank or
global bank. By being an Asean bank, however, one of the key growths is
to intermediate trade and investment between Asean and China. That is
our business model for China if you like,” he said.

CIMB has two
representative offices in Shanghai and a securities business in Hong
Kong. Nazir added that the representative offices in Shanghai would be
converted into full-fledged branches so that they would be able to offer
financial products and services to Chinese customers and facilitate the
growing trade and investments between Southeast Asia and China