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RAM Ratings reaffirms Bank of China (Malaysia)’s AA1/Stable/P1 ratings

Published on 10 Oct 2019.

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RAM Ratings has reaffirmed Bank of China (Malaysia) Berhad’s (BOCM or the Bank) AA1/Stable/P1 financial institution ratings. The reaffirmation reflects our expectation of ready financial support from BOCM’s intermediate parent, Bank of China (Hong Kong) Limited, as well as its ultimate parent, Bank of China Limited.

BOCM is a niche player relative to larger banks in Malaysia. Apart from its RMB clearing business, the Bank facilitates trade and foreign investments between China and Malaysia. Following the revival of several large-scale infrastructure projects in Malaysia, BOCM is cautiously optimistic of opportunities that could arise from its involvement in these developments. BOCM’s ability to finance big-ticket transactions is, however, constrained by its relatively small capital base vis-a-vis larger universal banking groups.

As BOCM’s customers are primarily large corporations, the Bank faces both depositor and borrower concentration. The latter makes the Bank prone to lumpy impairments, as a result of which its gross impaired loans ratio had risen slightly to 1.8% as at end-June 2019 (end-December 2017: 1.6%). The ratio could edge higher by the end of fiscal 2019 if other lumpy accounts on the Bank’s watchlist become impaired. Similarly, BOCM’s full-year profitability might be affected by hefty impairment charges relating to lumpy corporate impairments – pre-tax profit came in at a lower RM45 mil in 1H fiscal 2019 (1H fiscal 2018: RM96 mil).   

The Bank’s sturdy capitalisation, however, acts as a loan loss absorption buffer to stem asset quality deterioration. As at end-December 2018, BOCM’s common equity tier-1 and total capital ratios stood at 17.7% and 34.1%, respectively. The Bank’s average liquidity coverage and net stable funding ratios were amply above the 100% threshold in fiscal 2018. 

 

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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