Published on 10 Oct 2019.
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.
Goh Kwan Kheen, Timothy
(603) 3385 2496
(603) 3385 2577
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Ratings on Bank of China (Malaysia) Berhad