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.
This article appeared in The Edge Financial Daily, July 25, 2011.