RAM Ratings reaffirms OCBC Malaysia at AAA

Published on 17 Aug 2022.

Share Tweet Email

RAM Ratings has reaffirmed OCBC Bank (Malaysia) Berhad’s (OCBC Malaysia or the Bank) AAA/Stable/P1 financial institution ratings. 

The ratings incorporate our expectation of strong parental support from Oversea-Chinese Banking Corporation Limited (OCBC Ltd) in times of need, given the Bank’s role as a highly strategic subsidiary of the latter. 

In the 15-month period ending end-March 2022, OCBC Malaysia’s reported gross impaired loan (GIL) ratio crept up to 3.9% (end-December 2021: 3.6%; end-December 2020: 2.8%). Around two-thirds of new impairments stemmed from the Bank’s residential mortgage portfolio as relief measures gradually expired. Impairments have also emanated from the Bank’s non-retail portfolio, particularly the commercial banking book, which has generally been weaker than peers’. While we do not rule out further credit slippages, stepped-up collection efforts may help alleviate some pressure on the Bank’s asset quality. 

We highlight that OCBC Malaysia’s reclassification policy is stricter than local banks’. Excluding the difference with industry practice, its adjusted total GIL ratio would still be a sound 3.0%. The Bank has strong loss absorption buffers against lingering headwinds, with adjusted GIL coverage (including regulatory reserves) and common equity tier-1 capital ratios standing at a respective 119% and 15.6% as at end-March 2022. 

The Bank’s top line performance was boosted by a slightly wider net interest margin (NIM) (+9 bps) last year. Proactive funding cost management has kept its NIM at around 2.1% throughout the economic downturn. Despite still-elevated impairment charges, pre-tax profit improved 11% y-o-y, marginally raising the Bank’s return on risk-weighted assets (RoRWA) to 1.6% (FY Dec 2020: 1.5%). In 1Q FY Dec 2022, a writeback of provisions on the back of declining relief loans and better macroeconomic variables led to a 10% y-o-y uptick in OCBC Malaysia’s bottom line, which translated into an annualised RoRWA of 3.4%. 

OCBC Malaysia’s healthy funding and liquidity profile is underscored by a high proportion of current and savings account deposits, which accounted for 53% of customer deposits as at end-March 2022 (industry average: 33%). The Bank has a strong retail deposit franchise, with individual deposits making up 50% of its deposit base (industry: 37%). The Bank’s liquidity coverage and net stable funding ratios were above regulatory requirements.


Analytical contacts
Tan Shu Xuan
(603) 3385 2497

Sophia Lee
(603) 3385 2619


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 2022 by RAM Rating Services Berhad

Rating Rationale

Ratings on OCBC Bank (Malaysia) Berhad