KUALA LUMPUR (Apr 28): RAM Rating Services Bhd has assigned a preliminary P1 rating to CIMB Group Holdings Bhd’s proposed RM6 billion conventional and Islamic commercial papers (CP) programme.

In a statement today, RAM said it has reaffirmed CIMB Group’s AA1/stable/P1 corporate credit ratings, which reflect the sound credit metrics of its core banking subsidiaries and its structural subordination as their shareholder.

“Its banking subsidiaries in Malaysia, i.e. CIMB Bank Berhad, CIMB Islamic Bank Berhad and CIMB Investment Bank Berhad, operate on a universal-banking platform and carry AAA/Stable/P1 ratings from RAM,” said the rating agency.

The ratings agency also reaffirmed the respective AA1/Stable/P1 and AA3/Stable/- ratings of CIMB Group’s RM6 billion conventional and Islamic CP/medium term notes(MTN) programme (2008/2038) and RM3 billion subordinated notes programme(2009/2074).

RAM said the reaffirmation of CIMB Group’s ratings is premised on the expectation that its core subsidiaries will retain their dominance in consumer banking, Islamic banking and investment banking.

“While we envisage the group’s provisioning needs will remain high through the next 1-2 quarters given the challenging operating environments in Indonesia and Thailand, we also believe that the pressure on asset quality and earnings will be manageable and that conditions will gradually improve in the second half of 2015,” said RAM.

The ratings agency added that CIMB Group’s stronger capitalisation now provides a better cushion against further slippage in asset quality.

As at end December 2014, CIMB Group’s common-equity tier-1 capital ratio had improved to 10.1%, from 8.0% a year earlier.

“The group’s exit from the Australian market is somewhat unexpected and underlines the challenges of integration and value extraction from its acquisitions, particularly under a more testing environment.

Its mid-term priority is to reduce costs, given CIMB Group’s relatively high cost-to-income ratio of 59.1% vis-à-vis its similarly-rated peers, and the group is still keen on expanding into the Philippines and Vietnam to complete its ASEAN footprint, although any acquisition will likely be small,” said RAM.

CIMB (fundamental:1.05; valuation:1.65) was trading down 2 sen or 0.65% at RM6.07 at 3.24pm, with a market capitalisation of RM51.13 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)