RAM Ratings reaffirms Bank Pembangunan Malaysiaâ€™s AAA ratings
RAM Ratings has reaffirmed Bank Pembangunan Malaysia Berhad’s (BPMB or the Bank) AAA/Stable/P1 financial institution ratings, along with the AAA/Stable rating of the Bank’s up to RM 7 billion Conventional MTN and/or Islamic Murabahah MTN Programmes (2006/2036).
The ratings continue to reflect a strong likelihood of government support for BPMB in times of need, given the Bank’s strategic role in Malaysia’s development. As a wholly government-owned development financial institution, the Bank has been mandated to finance the infrastructure, technology, maritime as well as oil and gas (O&G) sectors. Government support has been well demonstrated in the past through capital injections, provision of funds to absorb credit losses on infrastructure loans, guarantees on the Bank’s borrowings, and the compensation of lending spreads for specific developmental financing.
Given its developmental role, BPMB takes on certain loans which bear higher credit risks. The Bank is also exposed to a high level of borrower-concentration risk, arising from its lumpy infrastructure loans. As at end-June 2016, its gross impaired-loan ratio stood at 10.5 per cent. BPMB’s credit-cost ratio has traditionally been high and came in at 1.5 per cent in fiscal 2015; this ratio is expected to remain elevated in fiscal 2016.
Apart from hefty credit losses, BPMB’s financial performance has also been affected by impairment charges on vessels (through its 90 per cent-owned subsidiary, Global Maritime Ventures Berhad or GMVB). In fiscal 2015, the Bank recorded a sharp decline in pre-tax profit to RM 125 million and incurred a net loss of RM 13 million (fiscal 2014: RM 306 million pre-tax profit and RM 125 million net profit). While BPMB’s pre-tax profit rebounded in 1H fiscal 2016 (unaudited), its full-year performance is likely to remain weak due to large provisioning needs in the second half. On balance, the Bank’s capitalisation is sound even when viewed in relation to its higher-risk credits; its Basel I tier-1 capital ratio stood at 32 per cent as at end-June 2016.
BPMB’s susceptibility to the vagaries of the shipping industry will be reduced after the rationalisation of GMVB’s subsidiaries via voluntary liquidation. Syarikat Borcos Sdn Bhd, GMVB’s main subsidiary, was deconsolidated from BPMB in December 2016; the other subsidiaries indentified for liquidation will follow suit.