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

Published on 13 Oct 2020.

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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 incorporates 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. The ratings also take into account BOCM’s strong capitalisation, which serves as an ample loss absorption buffer against potentially higher impairment charges in testing economic times caused by the Covid-19 pandemic. As at end-June 2020, common equity tier-1 and total capital ratios stood at 15.3% and 29.6%, respectively.

BOCM is a niche player relative to larger banks in Malaysia. Predominantly a wholesale bank, it also helps to facilitate trade and foreign investments between China and Malaysia, apart from its RMB clearing business. In fiscal 2019, the Bank’s loan portfolio expanded by 13% and growth is expected to remain healthy in fiscal 2020, regardless of the economic setbacks caused by Covid-19 pandemic (1H fiscal 2020 YTD growth: 17%). 

As BOCM’s customers are chiefly 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 (GIL) ratio had climbed to 2.4% as at end-June 2020 (end-December 2018: 1.0%). Given that 20% of the Bank’s total loans were placed under moratorium, a decline in asset quality had been temporarily averted since the imposition of the Movement Control Order.

Consistent with the targeted repayment assistance programme announced by BNM, which took effect after the moratorium ended on 30 September 2020, BOCM will continue to provide all necessary support to its borrowers who face temporary financial difficulties. As such, asset quality is expected to stay stable in the near term. However, GIL ratio could be nudged higher by several impairments in the event of a prolonged economic downturn. Meanwhile, credit cost is likely to be manageable in view of the extended repayment support initiatives. As at end-June 2020, adjusted GIL coverage (including regulatory reserves) came in at 110.4%. 

Although BOCM recorded a higher pre-tax profit of RM77.4 mil in 1H fiscal 2020 (1H fiscal 2019: RM45.1 mil), its earnings might be hit by economic headwinds from the pandemic in the near to medium term. While the Bank will likely encounter pressure on asset quality and earnings in the near term, the impact on its credit metrics is expected to remain within manageable levels. The Bank’s average liquidity coverage and net stable funding ratios were above the 100% threshold in 1H fiscal 2020. 

 

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 2020 by RAM Rating Services Berhad



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