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Rating Action:

Moody's affirms ratings of CIMB Group and subsidiaries; downgrades CIMB Bank's BCA

06 Oct 2015

Singapore, October 06, 2015 -- Moody's Investors Service has affirmed CIMB Bank Berhad's A3/P-2 local and foreign currency deposit ratings and A3 foreign currency senior unsecured debt ratings.

Moody's has also affirmed the bank's A3/P-2 foreign currency issuer ratings, and (P)A3 foreign currency senior unsecured medium-term note (MTN) rating.

The outlook on the A3 ratings remain positive.

Moody's has also affirmed CIMB Islamic Bank Berhad's A3/P-2 local and foreign currency deposit and issuer ratings.

The outlook on the A3 ratings remain positive.

At the same time, Moody's has downgraded CIMB Bank's baseline credit assessment (BCA) and Adjusted BCA to baa2, from baa1.

As a result of the Adjusted BCA downgrade, the following ratings of CIMB Bank were also downgraded:

(1) Foreign currency subordinate MTN rating downgraded to (P)Ba1, from (P)Baa3;

(2) Foreign currency preferred stock rating -- issued under SBB Capital Corporation, a subsidiary of CIMB Bank -- downgraded to Ba2(hyb), from Ba1(hyb).

CIMB Islamic's Adjusted BCA was also downgraded to baa2, from baa1.

The A3(cr)/P-2(cr) Counterparty Risk (CR) Assessments of CIMB Bank and CIMB Islamic were also affirmed.

Lastly, Moody's has affirmed CIMB Group Holdings Berhad's Baa1/P-2 local and foreign currency issuer ratings. The ratings outlook remains positive.

The ratings of PT Bank CIMB Niaga Tbk (Baa3 stable, ba2), CIMB Thai Bank Public Company Limited (Baa2 stable, ba2) and CIMB Investment Bank (A3 stable) remain unchanged and are not affected by this rating action.

A full list of all affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Downgrade of CIMB Bank's BCA and Adjusted BCA to baa2 from baa1

The downgrade of CIMB Bank's BCA and Adjusted BCA reflects the bank's weaker capitalization compared to its domestic and regional peers, as well as Moody's expectation that further pressure on asset quality from slowing operating conditions will weaken the bank's profitability and ability to improve its capital levels.

CIMB Bank's Common Equity Tier 1 ratio on a consolidated basis declined to 9.6% at end-June 2015 from 10.1% at end-2014 as a result of poorer profitability and higher regulatory capital deductions under the Basel III transitional rules. The ratio is lower than its domestic peers and the average of Moody's rated banks in Malaysia (June 2015: 11.2%).

Although operating revenue growth was strong at 10.6% year-on-year in 1H 2015 on an annualized basis, the bank's restructuring expenses totaling MYR303 million and higher credit costs from the bank's Thai operations have dragged the bank's overall profitability.

Over the next 12-18 months, we expect economic conditions in Thailand and Malaysia to slow, and in turn weaken the banking sector's and CIMB Bank's revenue growth, and increase downside risks to its asset quality and credit costs. As the bank's profitability weakens, its ability to generate capital internally will be limited.

In the absence of any significant capital raise, Moody's expects CIMB Bank to face challenges in improving its capital buffers to industry-average standards from their current levels, as the banking industry endures a period of protracted market volatility and weak domestic and regional growth.

Downgrade of various CIMB Bank's subordinated debt ratings

The ratings of CIMB Bank's foreign currency subordinated MTN rating and foreign currency preferred stock rating -- issued under SBB Capital Corporation, which is a subsidiary of CIMB Bank -- were downgraded by one-notch, following the one-notch downgrade of CIMB Bank's Adjusted BCA to baa2 from baa1.

CIMB Bank's subordinated MTN rating remains positioned 2 notches below the bank's Adjusted BCA, and the preferred stock rating positioned 3 notches below the bank's Adjusted BCA, which is in line with Moody's notching practice for subordinated debt securities.

Downgrade of CIMB Islamic's Adjusted BCA to baa2 from baa1

The rating downgrade follows the downgrade of the BCA of CIMB Bank -- CIMB Islamic's parent bank -- to baa2 from baa1.

CIMB Islamic's Adjusted BCA incorporates Moody's expectation of full parental support from CIMB Bank, whose capacity to provide support is now reflected by its baa2 BCA.

Ratings affirmation of CIMB Bank, CIMB Islamic and CIMB Group with positive outlooks

The ratings affirmation reflects Moody's expectation of very high government support for CIMB Group and the key CIMB Group subsidiaries, namely CIMB Bank and CIMB Islamic.

This high support is driven by the bank's significant domestic market shares of banking system deposits (1H 2015: 11%) and the 47% government stake in its parent holding company held through Employees Provident Fund (17.2%) and Khazanah Nasional Berhad (29.5%).

CIMB Group's Baa1 rating reflects the structural subordination of the group's creditors relative to CIMB Bank's creditors.

The positive outlook on CIMB Group's Baa1 rating and the A3 rating of both CIMB Bank and CIMB Islamic mirror the positive outlook on the A3 government bond rating.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Given the positive outlook on CIMB Bank's and CIMB Islamic's A3 ratings as well as CIMB Group's Baa1 rating, an upgrade of the sovereign bond rating would likely lead to an upgrade of these ratings, assuming the bank's credit metrics remain robust.

In view of the recent downgrade of CIMB Bank's BCA, any upside pressure on the BCA is unlikely in the near-term. However, the bank's BCA could eventually be raised, if it is able to achieve the following in the next 12-18 months: (1) improvement in risk-adjusted profitability and internal capital generation; (2) substantial improvement in asset quality or a material increase in its loss-absorption buffers; (3) significant reduction in borrower and industry concentration.

Conversely, the following factors could result in a downgrade of CIMB Bank's BCA and ratings: (1) a significant decline of its loss-absorption buffers; (2) a material deterioration in asset quality; (3) substantial decline of its profitability metrics; (4) a continued increase in the group's leverage levels; and/or (5) aggressive credit expansion or acquisitions that lead to significant increases in its risk profile.

The bank's subordinated MTN and preferred stock ratings are notched off its Adjusted BCA, and will move in line with any changes to its Adjusted BCA.

CIMB Islamic's Adjusted BCA reflects its credit fundamentals and Moody's expectation of full parental support from CIMB Bank. Its adjusted BCA could be upgraded if (1) its credit fundamentals improve; or (2) CIMB Bank's BCA is upgraded. The adjusted BCA could be downgraded if the BCAs of both CIMB Bank or CIMB Islamic are downgraded.

Taking into account today's announcement, the ratings of the affected entities are as follows:

CIMB Bank Berhad

- Long-term local and foreign currency deposit ratings affirmed at A3, with a positive outlook

- Long-term foreign currency issuer rating affirmed at A3, with a positive outlook

- Short-term local and foreign currency deposit and foreign currency issuer ratings affirmed at P-2

- Foreign currency senior unsecured rating affirmed at A3, with a positive outlook

- Foreign currency senior unsecured MTN rating affirmed at (P)A3

- Foreign currency subordinate MTN rating downgraded to (P)Ba1, from (P)Baa3

- BCA and adjusted BCA downgraded to baa2, from baa1

- CR Assessment affirmed at A3(cr)/P-2(cr)

CIMB Bank Berhad, Singapore Branch

- Local currency senior unsecured rating affirmed at A3, with a positive outlook

- Foreign currency senior unsecured MTN rating affirmed at (P)A3

- CR Assessment affirmed at A3(cr)/P-2(cr)

CIMB Bank Berhad, Labuan Branch

- Foreign currency senior unsecured rating affirmed at A3, with a positive outlook

- Foreign currency senior unsecured MTN rating affirmed at (P)A3

- CR Assessment affirmed at A3(cr)/P-2(cr)

SBB Capital Corporation

- Foreign currency backed preferred stock non-cumulative downgraded to Ba2(hyb), from Ba1(hyb)

CIMB Group Holdings Berhad

- Long-term local and foreign currency issuer ratings affirmed at Baa1, with a positive outlook

- Short-term local and foreign currency issuer ratings affirmed at P-2

CIMB Islamic Bank Berhad

- Long-term local and foreign currency deposit and issuer ratings affirmed at A3, with a positive outlook

- Short-term local and foreign currency deposit and issuer ratings affirmed at P-2

- BCA remain unchanged at baa2

- Adjusted BCA downgraded to baa2, from baa1

- CR Assessment affirmed at A3(cr)/P-2(cr)

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Simon Chen
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's affirms ratings of CIMB Group and subsidiaries; downgrades CIMB Bank's BCA
No Related Data.
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