Moody's Investors Service says that CIMB Bank Berhad's standalone creditworthiness is showing some signs of weakening, but its A3 bank deposit and senior unsecured debt ratings and the positive outlook on the ratings remain supported by the very high likelihood of systemic support for the bank, if needed.

Reflecting this deterioration, Moody's on 6 October affirmed CIMB Bank's long-term deposit and senior unsecured debt ratings of A3, while downgrading its baseline credit assessment (BCA) by one notch to baa2.

"CIMB Bank's capitalization is the lowest among large Malaysian banks, and it further weakened in 1H 2015 due to growth in risk-weighted assets, one-off restructuring costs and an increase in capital deductions for loan-loss reserve shortfalls," says Simon Chen, a Moody's Vice President and Senior Analyst.

"In the absence of any significant capital raising, we expect the bank's CET1 ratio will remain below those of its Malaysian peers, some of which have announced rights issues to boost their capital buffers in 2H 2015," adds Chen.

Chen was speaking on Moody's just-released report on CIMB Bank, entitled "Weaker Profitability, Rising Asset Risk Will Limit Internal Capital Generation."

As of June 2015, CIMB Bank's adjusted common equity tier 1 (CET1) ratio on a consolidated basis was 9.4%, down from 9.9% at end-2014. While one-off costs from restructuring will not recur, Moody's says further deductions could continue to pressure capital ratios if loan performance deteriorates.

Meanwhile, CIMB Bank's loan and revenue growth is slowing in its main markets of Malaysia (A3 positive) and Thailand (Baa1 stable).

In Malaysia, falling prices for crude oil, palm oil, natural gas and rubber have reduced loan demand from commodity exporters, while a depreciating ringgit is negatively affecting consumer spending.

Consequently, Moody's expects loan growth for the bank in Malaysia to slow to the mid- to single-digit in 2015, compared to 13% in 2014. At the same time, net interest margins in the country are narrowing due to an increased cost of deposits.

Asset quality indicators have remained stable so far in the country, with an overall nonperforming loan (NPL) ratio of 2.1% at end-June 2015, but continued weakness in commodity prices could begin affecting the cash flows of commodity sector borrowers. In addition, a further weakening of the Malaysian ringgit could affect the debt serviceability of households and corporates.

And in Thailand -- the only market apart from Malaysia that contributes more than 10% of CIMB Bank's total net interest income -- loan growth will slow to single digits in 2015, due to the weaker Thai economy.

Moody's also expects a rise in NPLs in Thailand, driven by weak economic conditions coupled with high household leverage. The bank's NPL ratio in Thailand ticked up to 4.1% of total loans in the first half of 2015, from 3.3% at end-2014.