Published on 09 Aug 2019.
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.
RM1 billion Tier-2 Subordinated Bonds (2015/2025)
RM8 billion Medium Term Notes Programme:
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.
Goh Kwan Kheen, Timothy
(603) 3385 2496
(603) 3385 2577
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Ratings on United Overseas Bank (Malaysia) Berhad