-  The press recently reported that Standard & Poor's Ratings Services (S&P) has withdrawn its rating on CIMB Group Holdings Bhd at the banking group’s request. At the same time, S&P also affirmed its 'BBB-' long-term and 'A-3' short-term issuer credit ratings on CIMB Group, and its negative outlook with an 'axBBB+' long-term and 'axA-2' short-term Asean regional scale ratings on the company. S&P said the negative outlook on the long-term rating mainly reflected its banking industry country risk assessment on Malaysia.

-  There was no change in S&P’s ratings, which was last changed in November 2013. To recap, in November 2013, S&P had revised the credit outlook on four Malaysian banks to Negative from Stable. The four banks are CIMB Group Holdings Bhd (CIMB), AmBank (M) Bhd, RHB Bank Bhd and RHB Investment Bank Bhd. S&P had said then the negative outlook is due to concerns on rising home prices and household debt.

-  Note though that CIMB had just been recently rated for the first time by Moody’s Investors Service (Moody’s). In July 2014, the press reported that Moody’s has assigned AAA long-term issuer ratings to CIMB.

-  We understand that the CIMB’s request for S&P to cease rating coverage is due mainly for cost-cutting measures, given that the company has now started to be rated by Moody’s, and there is no requirement to be rated by two major rating services. We concur with the move, given that there are ongoing incurrence of fees.

-  In July 2014, Moody’s also issued Prime-2 short term issuer ratings to the group. The ratings outlook for the non-operating financial holdings company is stable. Moody’s said the ratings reflect the financial strength and credit profile of the group's key operating financial subsidiaries, which include the 99.99%-held CIMB Bank Bhd (CIMB Bank, standalone credit strength of C-/baa1, local currency deposit rating of A1) and 96.92%-held PT Bank CIMB Niaga Tbk (CIMB Niaga, D/ba2/Baa3). Together, these credit factors result in the CIMB group's issuer rating being positioned at A3, which is two notches above its intrinsic standalone financial strength of baa2.

-  Generally, the differences in ratings may possibly influence funding cost, if there are plans to raise funding from long-term debt instruments. Nevertheless, funding costs for banks had been increasing over the past 12 months. For CIMB, we think that this change in rating agency is neutral.

Source: AmeSecurities