Published on 12 Nov 2021.
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 the Bank’s intermediate parent, Bank of China (Hong Kong) Limited, as well as its ultimate parent, Bank of China Limited. BOCM’s strong capitalisation is also viewed favourably, affording the Bank an ample loss absorption buffer against higher than expected impairment charges amid challenging economic conditions. Continuing to constrain the ratings are BOCM’s small stature and its highly concentrated loan and deposit bases.
BOCM is a niche player relative to larger banks in Malaysia. Predominantly a wholesale bank, it helps facilitate trade and foreign investments between China and Malaysia, apart from serving as a renminbi clearing bank. BOCM loans climbed a healthy 12% and 14% (annualised) in FY Dec 2020 and 1H FY Dec 2021, respectively. While remaining cautious on loan growth in view of economic and business uncertainties, the Bank may still register low to mid-teen annual growth this year owing to its smaller base.
As BOCM’s customers are chiefly large corporations, the Bank faces both depositor and borrower concentration risks. Its loan growth is therefore sensitive to large repayments and may expose the Bank to lumpy impairments. Its gross impaired loan (GIL) ratio nonetheless eased to 2.2% as at end-June 2021 (end-December 2019: 3.1%) owing to the resolution of several impaired accounts. BOCM expects no major increase in GILs in the near term but remains watchful of some high-risk customers in the vulnerable sectors (around 8.8% of gross loans as at end-March 2021). As at end-March 2021, 7.1% (or RM669 mil) of gross loans were under moratorium or being restructured and rescheduled. As loans under relief need not be classified as impaired, the crystallisation of the underlying credit risk is delayed.
BOCM’s credit cost improved to 11 bps in FY Dec 2020 (FY Dec 2019: 150 bps), including a RM18.2 mil management overlay in view of the difficult environment. The Bank reported a net reversal of credit cost in 1H FY Dec 2021, mainly due to the refinement of its expected credit loss model. While the Bank will likely incur some credit cost for the rest of the year, we do not expect the increase to be significant. Adjusted GIL coverage (including regulatory reserves) stood at 110% as at end-June 2021.
The Bank’s pre-tax profit jumped 57% y-o-y to RM109.4 mil in FY Dec 2020 on the back of markedly lower impairment charges compared to the year before (FY Dec 2020: RM9.1 mil; FY Dec 2019: RM108.7 mil). As a result, its return on risk-weighted assets came up to 1.2% for the period (FY Dec 2019: 0.8%), improving further to an annualised 1.6% in 1H FY Dec 2021, underpinned by a writeback of impairment charges during the year. Moving forward, impairment charges remain a downside risk to the Bank’s bottom line. Profitability indicators may stay flattish in FY Dec 2021.
BOCM’s common equity tier-1 capital and total capital ratios were still strong at 17.1% and 31.6%, respectively, as at end-June 2021 (end-December 2019: 17.0% and 32.2%). These levels will provide an adequate loss absorption buffer to withstand potential economic shocks precipitated by the pandemic.
Tan Shu Xuan
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(603) 3385 2619
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Ratings on Bank of China (Malaysia) Berhad