KUALA LUMPUR (May 8): Moody's Ratings has affirmed CIMB Group Holdings Bhd's (KL:CIMB) Baa1 issuer ratings and maintained its stable outlook, based on the group's improved solvency and stable liquidity as well as Moody's forecast that the group's problem loan ratio will remain stable at around 2.5% over the next 12-18 months.

Moody's also affirmed CIMB Bank Bhd's, CIMB Islamic Bhd's and CIMB Investment Bank Bhd's (CIMB IB) A3 issuer ratings.

At the same time, Moody's has upgraded CIMB Bank's Baseline Credit Assessment (BCA) to baa1 from baa2 and affirmed CIMB Islamic's baa2 BCA.

The upgrade, Moody's said, is premised by the structural improvements across the group's asset quality, profitability and capitalisation, the result of its derisking and cost-cutting initiatives since 2019.

Moody's explained that CIMB Bank's A3 issuer ratings are one notch higher than the bank's baa1 BCA, based on the ratings agency's assessment that the probability of support from the Government of Malaysia (A3 stable) will be very high in times of need.

"The government support assumption considers CIMB Group's systemic importance to Malaysia's financial system as the second-largest banking group by assets," said Moody’s in a statement on Wednesday.

According to Moody’s, CIMB Group's problem loan ratio decreased to 2.7% as of Dec 31, 2023 from 3.6% three years ago. In addition to its post-pandemic recovery, CIMB Group's asset quality is said to have improved because it exited or scaled down its overseas small- and medium-sized enterprise lending, a major source of legacy bad loans.

"The group has also become more conservative in provisioning, with its loan-loss coverage ratio higher at 97% as of Dec 31, 2023 compared with 80.7% four years ago," Moody's added.

Meanwhile, CIMB Group's return on assets increased to 1% in 2023 from 0.2% three years ago, according to Moody's, supported by the group's derisking and cost-cutting initiatives.

"The compression in the group's net interest margin will stabilise at current levels with the easing of deposit competition in Malaysia," the ratings agency contended.

At Wednesday's market close, shares of CIMB fell seven sen, or 1.03%, at RM6.74 for a market capitalisation of RM71.98 billion.