KUALA LUMPUR: Moody's has assigned AAA long term issuer ratings to CIMB Group Holdings Bhd.
This is the first time that Moody's has assigned ratings to the group.
It also issued Prime-2 short term issuer ratings to the group.
Moody’s Investors Service said in Singapore today the ratings outlook for the non-operating financial holdings company is stable.
The ratings reflect the financial strength and credit profile of the group's key operating financial subsidiaries, which include the 99.99 per cent-held CIMB Bank Bhd (CIMB Bank, standalone credit strength of C-/baa1, local currency deposit rating of A1) and 96.92 per cent-held PT Bank CIMB Niaga Tbk (CIMB Niaga, D/ba2/Baa3).
“The ratings also take into account the structural subordination of the group's obligations to the claims of its operating subsidiaries, its dominant franchise in Malaysia, and the government's 48.66 per cent indirect ownership in the holding company.”
Together, these credit factors result in the CIMB group's issuer rating being positioned at A3, that is two notches above its intrinsic standalone financial strength of baa2.
“Its intrinsic financial strength is driven by the consolidated financial strength of its largest banking subsidiaries, CIMB Bank, constituting 81 per cent of the Group's assets at end-March 2014, and CIMB Niaga, representing 17 per cent,”it noted.
CIMB Bank is the third largest commercial bank in Malaysia in terms of banking assets, and its strong franchise in its home market has supported its recurring profits and stable liquidity profile. Its asset quality has improved, but remains slightly weaker than its major domestic peers.
“Nonetheless, we note the improvements in CIMB Bank's asset quality over the last two years, evidenced by declines in new impaired loan formation. “
Going forward, the rating agency expects the stable operating environment of Malaysia to support the bank's asset quality.
“Overall, we view the Group's increasingly diversified operations as benefitting from a high level of integration and alignment of business strategies, product capabilities, risk management and technological resources across its various business divisions and geographical locations.”
On what could move the ratings it said it would consider the upgrade if the credit fundamentals of the Group's key commercial banking subsidiaries, particularly CIMB Bank, improve, in turn leading to an upward revision of their respective baseline credit assessments.
“We would also consider the upgrade if its leverage level falls as a result of a decline in its debt, such that refinancing risks are reduced substantially and it demonstrates a continued ability to self-fund its dividend and interest payments with internally-generated cash flows.”
But it warned that the long-term issuer rating could be downgraded if the financial performance of its key subsidiaries significantly weakens, affecting their ability to upstream dividends to the group.
It could also go lower if leverage further rises, caused by an increase in borrowings, to the extent that expected and/or recurring income streams become increasingly insufficient to cover associated interest payments.