• PRESS RELEASES

RAM Ratings reaffirms OCBC Malaysia’s AAA financial institution rating

Published on 26 Jul 2019.

Share Tweet Email

RAM Ratings has reaffirmed OCBC Bank (Malaysia) Berhad’s (OCBC Malaysia or the Bank) AAA/Stable/P1 financial institution ratings. The ratings reflect the Bank’s established franchise, healthy capitalisation, sound funding and liquidity and satisfactory asset quality. In addition, we expect the Bank to remain highly strategic to its parent, Oversea-Chinese Banking Corporation Limited (the Group), the second-largest banking group in Southeast Asia (by assets), with strong credit metrics.  

Leveraging on the Group’s regional network and expertise, OCBC Malaysia has an established franchise among corporates and is able to serve its clients’ cross-border banking needs despite its mid-sized stature by assets. The Bank was the top arranger in the Malaysian syndicated loans market for 2017 and 2018. Expansion of corporate loans in 2018, which more than offset contraction in residential mortgages, led OCBC Malaysia’s loan growth to recover slightly to 1.5% for the year (2017: -0.1%).

OCBC Malaysia’s gross impaired loan (GIL) ratio had declined to 1.9% as at end-March 2019 (end-December 2017: 2.1%) amid the partial write-off of some corporate accounts in 2018 and benign impaired loan formation. Nonetheless, the Bank could see slippage from its exposure to the construction sector (4.4% of total loans as at end-March 2019) as a few contractors face delays in receiving payments. An internal downgrade of some construction loans, coupled with a group-wide decision to write down offshore support vessel (OSV) collateral to scrap value and worsening macroeconomic variables, pushed up the Bank’s credit cost ratio to an annualised 66 bps in 1Q fiscal 2019 (full-year fiscal 2018: 33 bps), or an annualised 49 bps excluding the OSV provision. On balance, the Bank’s GIL coverage ratio (inclusive of its regulatory reserve) was a sturdy 118%.

Amid heftier impairment charges, OCBC Malaysia’s pre-tax profit fell 14% from a record high of RM1.3 bil in fiscal 2017 to RM1.1 bil in fiscal 2018 and slid another 31% y-o-y to RM0.2 bil in 1Q fiscal 2019. The Bank’s pre-tax return on risk-weighted assets dwindled to a respective 2.3% and 1.8% (annualised) for the two fiscal periods (fiscal 2017: 2.8%). While its net interest margin has been widening, thanks to an improved funding cost, the Bank’s full-year performance could stay subdued as potential asset quality slippage could keep impairment charges high.

OCBC Malaysia’s liquidity coverage ratio is comfortably above 100% while its net stable funding ratio already exceeds the 100% requirement that will take effect only in 2020. The Bank’s customer deposit growth since 2018 has been mainly driven by current and savings account (CASA) deposits. As such, the proportion of CASA deposits had steadily risen to 34% of customer deposits as at end-March 2019 (end-December 2017: 30%). The Bank’s common equity tier-1 capital ratio was a healthy 13.1% as at the same date, even without considering unaudited profit for 1Q fiscal 2019, which would contribute 0.3 percentage points.

 

Analytical contact
Lim Yu Cheng, CFA, FRM
(603) 3385 2492
yucheng@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



Rating Rationale

Ratings on OCBC Bank (Malaysia) Berhad

Loading...