25 November 2015
MARC has assigned corporate credit ratings of AA+/MARC-1 to CIMB Group Holdings Berhad (CIMB Group) and concurrently assigned a preliminary rating of AA to the group's proposed RM10.0 billion Basel III-compliant Tier 2 Subordinated Debt Programme (sub-debt programme). The outlook on all of the ratings is stable. The one-notch rating differential between CIMB Group's long-term corporate credit rating and its sub-debt programme reflects the subordination of the latter to senior obligations of CIMB Group.

As a non-operating holding company, CIMB Group relies on dividend flow from its key subsidiary CIMB Group Sdn Bhd, which owns CIMB Bank Bhd (CIMB Bank), CIMB Investment Bank Bhd and PT Bank CIMB Niaga Tbk, to meet its financial obligations. Of these indirect subsidiaries, CIMB Bank is the group's core operating entity, accounting for 80% and 62% of the group's consolidated assets and pre-tax profit respectively in 2014. Historically, the bulk of CIMB Group's dividend income has been derived from CIMB Bank. The bank (including its subsidiaries, affiliates and joint ventures) has consolidated assets of RM361.5 billion as at end-June 2015 and is one of the largest financial services group in Malaysia with an increasing presence in the ASEAN region. CIMB Bank currently carries MARC's ratings of AAA/MARC-1/Stable based on its well-established banking franchise and strong market position, as well as the high likelihood of systemic support for the bank. The assigned corporate credit ratings of CIMB Group incorporates the subordination of the holding company's financial obligations to that of its subsidiaries. 

CIMB Group's consolidated net profit grew by a compound annual growth rate of 13.0% between 2009 and 2013, supported by loan growth and capital market activities. However, its recent earnings performance was moderated by lower net interest margins and the weakening performance of its Indonesian operations due to higher impairments. This contributed to an increase in CIMB Group's gross impairment ratio to 3.3% as at end-June 2015 (end-June 2014: 3.1%). In addition, earnings from CIMB Bank, which operates predominantly in Malaysia, also declined in 1H2015. Coupled with one-off costs related to the restructuring and mutual separation scheme (MSS), CIMB Group's pre-tax profit declined by 37.1% year-on-year to RM1.7 billion in 1H2015 (1H2014: RM2.7 billion). The group implemented cost-cutting initiatives which resulted in the cost-to-income ratio improving to 56.7% in 1H2015 (on excluding one-off costs relating to the restructuring and MSS) (1H2014: 57.9%).

At the company level, CIMB Group registered a lower pre-tax profit of RM617.8 million in 1H2015 (1H2014: RM892.1 million) due to lower dividend income from CIMB Bank. MARC notes that the annual dividend income has been sufficient to meet the group's annual debt obligations, while the acquisition of additional equity interest in subsidiaries was partly funded by proceeds from issuance of new equity and debt.

MARC notes that proceeds from the issuances under CIMB Group's rated sub-debt programme will be utilised to meet its capital requirements as a financial holding company under Bank Negara Malaysia's capital adequacy guidelines by January 1, 2019. Additionally, the proceeds are likely to be onlent to or invested in its subsidiaries to meet their capital requirements. This could result in an increase in the group's double leverage ratio from its current level of 129% as at end-June 2015. The rating agency views the group's current double leverage ratio as high, although it has declined from 143% as at end-2012 due to new share issuances through private placements and its dividend reinvestment scheme (DRS) in the last two years. MARC expects CIMB Group to issue the sub-debt on a staggered basis and continue to implement DRS to moderate upward pressure on its double leverage ratio. 

The stable outlook reflects MARC's expectation that the group's overall credit profile will be maintained against a moderate domestic and regional macroeconomic outlook. As the ratings and outlook are driven by the key performance metrics of the group's key subsidiaries, any change in their credit profile could impact the ratings and outlook of CIMB Group.

Contacts: Joan Leong, +603-2082 2270/ joan@marc.com.my; Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.

© Press Release 2015