CIMB Bank's standalone creditworthiness showing signs of weakening
Published on: Friday, October 09, 2015
Kuala Lumpur: Moody's Investors Service says that CIMB Bank Bhd's standalone creditworthiness is showing some signs of weakening, but its A3 bank deposit and senior unsecured debt ratings and the positive outlook on the ratings remain supported by a very high likelihood of systemic support for the bank, if needed. Reflecting this deterioration, Moody's on Tuesday affirmed CIMB Bank's long-term deposit and senior unsecured debt ratings of A3, while downgrading its baseline credit assessment (BCA) by one notch to baa2. "CIMB Bank's capitalisation is the lowest among large Malaysian banks, and it further weakened in 1H 2015 due to growth in risk-weighted assets, one-off restructuring costs and an increase in capital deductions for loan-loss reserve shortfalls," Simon Chen, Moody's Vice-President and Senior Analyst said in a research note. "In the absence of any significant capital raising, we expect the bank's Common Equity Tier one capital (CET1) ratio will remain below those of its Malaysian peers, some of which have announced rights issues to boost their capital buffers in 2H 2015," Chen said on Moody's just-released report on CIMB Bank entitled "Weaker Profitability, Rising Asset Risk Will Limit Internal Capital Generation." ADVERTISEMENT As at June 2015, CIMB Bank's adjusted CET1 ratio on a consolidated basis was 9.4 per cent, down from 9.9 per cent at end of 2014. While one-off costs from restructuring will not recur, Moody's said further deductions could continue to pressure capital ratios if loan performance deteriorates. Meanwhile, CIMB Bank's loan and revenue growth is slowing in its main markets of Malaysia (A3 positive) and Thailand (Baa1 stable). In Malaysia, falling prices of crude oil, palm oil, natural gas and rubber have reduced loan demand from commodity exporters, while the depreciating ringgit is negatively affecting consumer spending. Consequently, Moody's expects loan growth for the bank in Malaysia to slow to the mid- to single-digit in 2015, compared to 13 per cent in 2014. At the same time, net interest margins in the country are narrowing due to an increased cost of deposits. ADVERTISEMENT Asset quality indicators in the country remained stable so far, with an overall nonperforming loan (NPL) ratio of 2.1 per cent at end of June 2015, but continued weakness in commodity prices could begin affecting the cash flows of commodity sector borrowers. In addition, further weakening of the Malaysian ringgit could affect the debt serviceability of households and corporates.
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And in Thailand–the only market apart from Malaysia that contributes more than 10 per cent of CIMB Bank's total net interest income–loan growth will slow to single digit in 2015 due to the weaker Thai economy. Moody's also expects a rise in NPLs in Thailand, saddled by weak economic conditions coupled with high household leverage. The bank's NPL ratio in Thailand ticked up to 4.1 per cent of total loans in the first half of 2015, from 3.3 per cent at end-2014. – Bernama