RAM Ratings reaffirms UOB Malaysia’s AAA rating

Published on 13 Aug 2020.

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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. The reaffirmation reflects our expectation that the Bank will be able to maintain its credit metrics at healthy levels despite the economic fallout from the Covid-19 pandemic. The ratings also incorporate our view of ready support from its parent, United Overseas Bank Limited, if required, given the Bank’s strategic importance to the former.

While UOB Malaysia may face some asset quality stresses after Bank Negara Malaysia’s loan moratorium ends, the impact is envisaged to be manageable owing to the Bank’s track record of prudent credit underwriting and risk management practices. The Bank’s healthy levels of pre-provision profit, sound loan loss coverage ratio and strong capitalisation put it on a better footing to tide over escalating credit headwinds. 

UOB Malaysia’s gross impaired loan (GIL) ratio had risen to 1.9% as at end-March 2020 (end-December 2018: 1.7%), attributable to its residential mortgages and, to a lesser extent, some lumpy exposures from its working capital segment. While the ratio is higher than the banking system’s 1.6%, we take cognisance of the Bank’s stricter impaired loan reclassification policy. UOB Malaysia’s GIL coverage ratio was still sturdy at 99% even though its lending portfolio is well collateralised. The Bank had prudently booked in higher impairment provisions in 1Q fiscal 2020 in view of an anticipated increase in credit defaults in the coming year. Its credit cost ratio was an annualised 45 bps in this period compared to an annualised 9 bps in 1Q fiscal 2019.  

Coupled with higher operating expenditures, an uptick in credit costs had weighed on UOB Malaysia’s pre-tax profit in fiscal 2019. Earnings for the year were slightly lower at RM1.6 bil (-1% y-o-y), although partly cushioned by a better trading gain amid tumbling bond yields. The Bank’s return on risk-weighted assets remained healthy at 2.6% despite having declined from 2.8% in fiscal 2018. Its finer net interest margin of 1.9% (fiscal 2018: 2.0%) is expected to narrow further against a backdrop of falling interest rates. Although the Bank will not be spared profitability challenges amid harsher economic conditions, its pre-provision profit is envisaged to provide a sufficient buffer against additional provisioning needs. 

UOB Malaysia’s funding position is supported by its considerably large proportions of retail deposits and current and savings account (CASA) deposits. Individuals deposits made up more than half of total customer deposits as at end-March 2020 while CASA deposits accounted for 30% (end-December 2018: 28%; industry average: 28%). UOB Malaysia’s liquidity coverage and net stable funding ratios were well above the regulatory requirements as at the same date. The Bank’s common equity tier-1 capital ratio stayed strong at 16.1% – among the highest in the banking industry.

Table 1: UOB Malaysia’s issue ratings



RM8 bil Medium Term Notes Programme:

  • Senior Notes
  • Tier-2 Subordinated Notes





Analytical contact
Chow Kah Mun
(603) 3385 2501

Media contact
Padthma Subbiah
(603) 3385 2577


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
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