Thursday, November 25, 2010

RAM Ratings reaffirms Bank Pembangunan ratings, RM7b debt notes

KUALA LUMPUR: RAM Rating Services Bhd has reaffirmed Bank Pembangunan Malaysia Bhd's (BPMB) long- and short-term financial institution ratings at AAA and P1, respectively.

The ratings agency said on Thursday, Nov 25, the long-term rating of the bank's up to RM7 billion conventional medium-term notes (MTN) and/or Islamic Murabahah MTN programmes has been reaffirmed at AAA. Both long-term ratings carry a stable outlook.

'The ratings reflect BPMB's status as a strategically important entity to the Federal Government of Malaysia (the government), based on the Bank's socio-economic role and track record of exceptionally strong support from the Government', explains Promod Dass, RAM Ratings' head of financial institution ratings.

As a development financial institution (DFI) and wholly owned subsidiary of the Government, BPMB acts as the government's key funding conduit to develop and support the infrastructure, maritime and high-TECHNOLOGY [] sectors.

Given the bank's DFI business model, BPMB is typically exposed to higher credit and loan-concentration risks, particularly from its portfolio of infrastructure loans.

Nonetheless, the Federal Government is more than likely to extend its backing if needed. Historically, such support has been provided by way of equity injections, government guarantees on specific borrowings, and compensation, among other forms.

In FY Dec 2009, BPMB's pre-tax profit plunged 65% year-on-year to RM339.5 million, as a result of significantly higher loan-loss provisions amounting to RM507.2 million (FY Dec 2008: RM41.2 million). The bulk of these impairment provisions had been set aside as a prudent measure vis-''-vis a sizeable loan in view of the impending implementation of Financial Reporting Standards 139.

Meanwhile, the bank's liquid-asset ratio had lowered to 21.3% as at end-March 2010 (end-December 2008: 54.8%), following BPMB's hefty financing requirements for infrastructure projects during the period.

While the pressure on the bank's liquidity and loan concentration are not expected to subside over the medium term, comfort can be drawn from the strong support from the Government - if required - and the Bank's healthy capitalisation, demonstrated by its overall risk-weighted capital-adequacy ratio of 31.3% as at end-March 2010.


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