RAM Ratings has affirmed Bank Pembangunan Malaysia Berhad’s (BPMB or the Group) AAA/Stable/P1 financial institution ratings alongside the AAA/Stable rating of its RM7 billion Conventional MTN and/or Islamic Murabahah MTN Programmes (2006/2036).
The Ratings agency changed the ratings to AAA after it had mistakenly attributed a AA/Stable in an earlier release.
The latest ratings it said was premised on expectations of continued support from the Government of Malaysia, given BPMB’s status as a wholly government-owned development financial institution (DFI) and its strategic role in the country’s development agenda. Since 2020, BPMB has gradually expanded its provision of financing beyond the traditional industry sectors of infrastructure, high technology, maritime, and oil and gas, emphasising sustainable financing that promotes a greater socio-economic impact to the nation.
BPMB has received strong government support in the past in the form of a capital injection, the provision of grants to cover credit losses on infrastructure financing, cost of funds compensation and profit subsidies for dedicated schemes. Some of the Group’s borrowings are covered by government guarantees.
On 1 March 2023, BPMB and Danajamin Nasional Berhad (Danajamin or the Company) completed an amalgamation exercise via a business transfer scheme after the Group wholly acquired the Company in November 2021. Danajamin is currently being liquidated following the transfer of its assets and liabilities to BPMB. The government reiterated in Budget 2024 its intention to continue restructuring the DFI sector. This will involve the merger of BPMB, Small Medium Enterprise Development Bank Malaysia Berhad and Export-Import Bank of Malaysia Berhad (rated AAA/Stable/P1), an exercise which is not expected to impact the Group’s ratings.
Like other DFIs, BPMB may take on higher-risk credits in extending financing to strategic priority sectors in view of its developmental mandate. As at end-March 2023, its gross impaired financing ratio inched up to 11.3%, largely due to a smaller financing base (end-December 2021: 10.7%). The sizeable share of lending to large-scale and long-term development projects in the Group’s financing book exposes it to a high degree of customer concentration risk.
In FY Dec 2022, pre-tax profit rose 49% y-o-y to RM379.3 mil (FY Dec 2021: RM254.4 mil), primarily driven by a broader net financing margin and a jump in net earned premiums following the merger with Danajamin. This translated into a higher return on risk-weighted assets of 1.6% (FY Dec 2020: 1.1%). BPMB’s profit performance nonetheless remains sensitive to big-ticket impairment expenses in view of its financing profile. On balance, the Group’s loss absorption buffers stayed robust, with its adjusted gross impaired financing coverage ratio (including infrastructure support fund) and bank-level tier-1 capital ratio at a respective 190% and 35% as at end-March 2023.
