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RAM Ratings reaffirms UOB Malaysia’s AAA/P1 ratings

Published on 09 Aug 2019.

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RAM Ratings has reaffirmed United Overseas Bank (Malaysia) Bhd’s (UOB Malaysia or the Bank) AAA/Stable/P1 financial institution ratings (FIRs) as well as the ratings of its debt instruments (Table 1). The reaffirmation reflects the Bank’s still sturdy credit metrics and established franchise in property mortgages and SME financing. Its steady profitability, strong funding and liquidity profile, and robust capitalisation are integral to its ratings strength. UOB Malaysia’s asset quality remained sound, but it might be faced with increasing challenges given the current sluggish environment. However, in view of the Bank’s demonstrated track record of prudent risk management, its asset quality is not anticipated to deteriorate significantly in the near to medium term. Due to the Bank’s strategic importance to its parent, United Overseas Bank Limited, the ratings also incorporate our expectation of ready parental support if required.

Table 1: UOB Malaysia’s issue ratings

 

Rating

RM1 billion Tier-2 Subordinated Bonds (2015/2025)

AA1/Stable

RM8 billion Medium Term Notes Programme:

  • Senior Notes
  • Tier-2 Subordinated Notes

 

AAA/Stable

AA1/Stable

 

The Bank recorded a gross impaired loan (GIL) ratio of 1.8% as at end-March 2019 (end-December 2018: 1.7%). Although the ratio is higher than the banking system’s 1.5% on the same date, we note that UOB Malaysia has a stricter impaired loan reclassification policy. That said, asset quality slippage was observed in UOB Malaysia’s real estate and construction portfolios. On the other hand, impaired loans coverage stood at 95.8% as at end-December 2018 and we also derive comfort from the fact that about 80% of total impaired loans were secured. 

On account of lower impairment charges, UOB Malaysia’s pre-tax profit climbed to RM1.63 bil in fiscal 2018 (fiscal 2017: RM1.52 bil). Its net interest margin (NIM) decreased to an annualised 1.92% in 1Q fiscal 2019 (fiscal 2018: 2.02%) owing to an increase in the cost of funds. The recent 25-bp reduction in the overnight policy rate is expected to put pressure on the Bank’s full-year NIM.  

Meanwhile, UOB Malaysia’s funding and liquidity profile stayed strong, with average liquidity coverage and net stable funding ratios continuing to be formidably comfortable above 100%, respectively, in fiscal 2018. The Bank’s capitalisation is among the highest in the industry, its respective common equity tier-1 and total capital ratios standing at 15.6% and 18.8% as at end-March 2019.

 

Analytical contact
Goh Kwan Kheen, Timothy
(603) 3385 2496
timothy@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



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