KUALA LUMPUR (Feb 5): Moody's Investors Service, which affirmed the debt issuer ratings of CIMB Group Holdings Bhd and its subsidiary CIMB Bank Bhd, said today the outlook for CIMB Bank’s Hong Kong, Singapore and Labuan branches had been changed to "no outlook" from “stable", given that there is no senior debt outstanding from those branches.

In a note today, Moody’s said it had affirmed the "A3" issuer ratings of CIMB Bank, CIMB Islamic Bank Bhd and CIMB Investment Bank Bhd. 

"Moody's has also affirmed CIMB Group's 'Baa1' issuer rating,” it said.

"CIMB Group's 'Baa1' issuer rating could be upgraded if CIMB Bank's 'A3' rating is upgraded and the group's financial leverage remains stable. CIMB Group's 'Baa1' issuer rating will be downgraded if CIMB Bank’s 'A3' issuer rating is downgraded. 

"An increase in CIMB Group's leverage because of higher borrowings at the holding company will also put pressure on its rating,” Moody’s said.

According to Moody’s, the affirmation of CIMB Bank's "A3" issuer rating with a stable outlook reflects CIMB Bank's well-established franchise, improved capitalisation and stable core profitability. 

These strengths largely mitigate risks to CIMB Bank's asset quality and profitability driven by the Covid-19 pandemic-induced economic contraction in key operating markets.

"Moody's expects successful execution of CIMB Bank's restructuring to improve its profitability and resilience to operating environment changes. The group's ongoing restructuring aims to de-risk the business,  simplify the operating structure and improve profitability to deliver sustainable financial results. 

"However, the benefits will take time to materialise because the group faces tough operation conditions in most markets,” Moody’s said.

According to Moody’s, CIMB Bank's "A3" issuer rating is two notches above its "baa2" baseline credit assessment (BCA), reflecting Moody's expectations of a very high level of support to the bank from the government of Malaysia in times of need.

Moody’s said the expectations are based on CIMB Bank’s significant deposit market share of 12% in Malaysia as at the end of September 2020 and the 49.8% indirect government stake in CIMB Group through Khazanah Nasional Bhd, the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan (Diperbadankan) (KWAP) as of December 2020.

KWAP is also known as Retirement Fund (Incorporated).

Moody’s said CIMB Bank's "A3" issuer rating could be upgraded if Malaysia's "A3" sovereign rating is upgraded, provided that the bank's stand-alone credit metrics remain robust. 

“Its (CIMB Bank's) 'baa2' BCA and adjusted BCA could be upgraded if the bank's asset quality and capitalisation improve, supported by stable operating conditions in its key markets.

“CIMB Bank's 'A3' issuer rating could be downgraded if Malaysia's 'A3' sovereign rating is downgraded. Its BCA could be downgraded if its loss-absorption buffers substantially decline, driven by asset quality deterioration that hurts internal capital generation capacity. 

"An aggressive credit expansion or acquisition that increases CIMB Bank's risk profile can also lead to a downgrade of the BCA,” Moody’s said.

On Bursa Malaysia today, CIMB Group’s share price had fallen five sen or 1.27% to RM3.90 at 3.34pm, with a market value of about RM38.69 billion.

The stock had seen some six million shares traded.