Fitch gives CIMB Bank BBB+ rating with Positive Outlook

Upgrades Individual Rating from C to B/C due to improved balance sheet position and earnings.

Fitch Ratings on Monday has upgraded the Individual Rating of Malaysia's CIMB Bank Berhad (CIMB Bank) to 'B/C' from 'C'. Simultaneously the agency has revised the Outlook to Positive from Stable on CIMB Bank's and CIMB Investment Bank Berhad's (CIMB Investment Bank) 'BBB+' Long-term foreign currency Issuer Default Ratings (IDRs), according to a Fitch report.

The upgrade in CMB Bank's Individual Rating reflects its improved balance sheet position and satisfactory earnings profile, both of which remained resilient in 2009 despite difficult economic conditions. The upgrade also recognises the bank's diversified loan portfolio and healthy deposit base stemming from its status as the second-largest Malaysian banking group, an adequate capital position and management's good track record.

Fitch draws attention to the revised Outlook on CIMB Bank's 'BBB+' IDR to Positive as recognising the scope for stronger and greater diversification of its income base, albeit with expansion-related risks, particularly in emerging markets such as Indonesia and Thailand where the operating environment is generally more challenging than in Malaysia.

Moreover, the macroeconomic environment, while on an improving trend in recent months, is still susceptible to adverse global developments. In Fitch's opinion, the bank's ability to negotiate such execution risks in these regional markets can be better assessed over time when there is a clearer demonstration that a sustainable and prudent growth strategy can be achieved. This may lead to a review of its IDR for an upgrade.

CIMB Investment Bank's ratings are the same as CIMB Bank's, given that the former effectively operates as a division within the larger CIMB Group. As part of the universal bank, CIMB Investment Bank represents the investment banking and stock-broking arm of the CIMB Group although it is still being maintained as a separate legal entity for regulatory reasons.

Despite tough business conditions in 2009, CIMB Bank was among the few Malaysian banks whose profit rose, thanks to higher treasury-related gains, wider margins and stable credit costs. This, together with the raising of new capital, led to a rise in its consolidated core Tier 1 CAR to an estimated 9.0% at end-2009 (end-2008: 7.5%). The bank has been increasing retail deposits to diversify its deposit base, which has had some concentration of large corporations, but this risk has been mitigated by ample liquidity in the local financial sector. Its liquidity position also appears satisfactory with a loan/deposit ratio of 80% at end-2009, but deposits would have to rise faster than loans in Indonesia and Thailand to improve the ratio in these countries, where in both cases it is still above 90%.

CIMB Bank's earnings prospects appear good in 2010 with a more stable credit environment and lending activities supported by the global economic recovery. However, uncertainties among many developed economies are a risk factor. Fitch notes the group's fast-growing exposure in Indonesia, where credit costs - one gauge of risks in an operating environment - have been higher than in Malaysia. This may be mitigated by the group risk committee's close oversight and the good earnings buffer offered by its Indonesia subsidiary, PT Bank CIMB Niaga Tbk in absorbing credit costs, thanks to its high margins on a standalone basis.

Credit exposure in Thailand may remain modest relative to the banking group's balance sheet, although its subsidiary, CIMB Thai Bank Public Company Limited, may still be vulnerable to provisioning risk from the continuing political unrest in Thailand and its relatively low NPL reserve coverage.

CIMB Bank is a wholly-owned main operating subsidiary of CIMB Group Holdings Berhad; the latter has a network of 1,150 branches, and about 36,000 employees. Accounting for 14% of banking assets and with a 46% indirect government shareholding, and as Malaysia's second-largest banking group, there would be - in Fitch's opinion - a high likelihood of government support if needed.

Here are all the rating actions:

CIMB Bank:

• Long-term foreign currency IDR affirmed at 'BBB+'; Outlook revised to Positive from Stable;
• Short-term foreign currency IDR affirmed at 'F2';
• Individual Rating upgraded to 'B/C', from 'C';
• Support Rating affirmed at '2';
• Support Rating Floor affirmed at 'BBB'; and
• Deposit rating at 'A-'.

CIMB Investment Bank:

• Long-term foreign currency IDR affirmed at 'BBB+'; Outlook revised to Positive from Stable;
• Support Rating affirmed at '2' ;
• Support Rating Floor affirmed at 'BBB'; and
• Deposit rating at 'A-'.