[MARC] MARC affirms CIMB Islamic's financial institution and related issue ratings
Posted Date: August 25, 2020
MARC has affirmed CIMB Islamic Bank Berhad's (CIMB Islamic) financial institution (FI) ratings of AAA/MARC-1/Stable. CIMB Islamic's FI ratings are equalised to parent CIMB Bank Berhad (AAA/Stable), based on its strategic importance in Islamic banking, its shared branding and close operational integration within the group. The rating agency has concurrently affirmed the ratings on CIMB Islamic's sukuk issuances as follows:
RM10.0 billion Senior Sukuk Wakalah Programme (Sukuk Wakalah) at AAAIS/Stable
RM5.0 billion Tier 2 Junior Sukuk Programme at AA+IS/Stable
CIMB Islamic remains the second-largest Islamic bank in Malaysia in terms of assets and has a significant market share in key areas of the domestic Islamic retail market such as home financing and automotive financing. It has registered strong double-digit financing growth over the years, but this growth tapered to 8.0% y-o-y in 1Q2020. This was down from 11.8% in 2019 but on par with the industry's 7.9% financing growth over the same period. MARC expects the bank's loan growth for full year 2020 to be in the low single digits due to weakened economic conditions amid measures implemented to combat the COVID-19 pandemic.
Against this backdrop, the bank's asset quality is expected to come under further pressure. Its gross impaired financing (GIF) ratio rose to 1.59% while total GIF stood at RM1.3 billion in 1Q2020 (2019: 1.56%; RM1.2 billion). The GIF ratio is substantially higher than the 0.62% in 2018, largely due to a lumpy non-performing corporate client from the manufacturing sector. As this exposure is part of the restricted profit-sharing investment account (RPSIA) arrangement in which credit risk is absorbed by the parent bank, the impact on CIMB Islamic is mitigated. MARC understands that this financing is sufficiently collateralised.
As a consequence of the COVID-19 pandemic coupled with the seasoning effect from strong financing growth in recent years, the bank's profitability measures are likely to be impacted over the near term. However, in 1Q2020 the bank saw a 3.1% y-o-y increase in pre-tax profit to RM255.5 million, translating to an annualised return on assets and return on equity of 0.7% and 12.0%.
Capitalisation remains healthy despite a decline and offers some buffer against the current challenging conditions. Common Equity Tier 1 (CET1) and total capital ratios declined to 12.2% and 15.9% as at end-1Q2020 (2019: 13.4%; 17.0%), mainly due to higher risk-weighted assets (RWA) on financing expansion. The bank's capital position is supported by internal capital generation and from its parent CIMB Bank through the RPSIA. As at end-March 2020, the total RWA for credit risk absorbed by the parent stood at RM4.8 billion (2019: RM5.0 billion). The bank's funding and liquidity position continues to be sound; current and savings account (CASA) deposits accounted for 23.4% of total deposits as at end-2019 (2018: 19.6%), improving marginally to 23.7% in 1Q2020. Its liquidity coverage ratio of 134.0% in 1Q2020 is significantly higher than the minimum regulatory requirement of 100%.
The stable outlook reflects MARC's expectation that CIMB Islamic would remain an integral member of the CIMB Group. Any change in the rating of its parent CIMB Bank or in the rating agency's assessment of the parent-subsidiary relationship would in turn affect CIMB Islamic's ratings.
Contacts:
Raj Shankar, +603-2717 2956, rajshankar@marc.com.my;
Farhan Darham, +603-2717 2945, farhan@marc.com.my;
Mohd Izazee Ismail, +603-2717 2947, izazee@marc.com.my
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