Published on 24 Aug 2022.
RAM Ratings has reaffirmed Bank of China (Malaysia) Berhad’s (BOCM or the Bank) AA1/Stable/P1 financial institution ratings.
The reaffirmation considers our expectation of ready financial support from Bank of China (Hong Kong) Limited – the Bank’s intermediate parent – as well as Bank of China Limited, its ultimate parent. BOCM has strong loss absorption buffers against asset quality headwinds, in the form of loan loss coverage and capitalisation. The Bank’s relatively small stature and highly concentrated loans and deposits in nature remain a rating constraint.
BOCM’s gross impaired loan (GIL) ratio stayed relatively unchanged at 2.3% as at end-March 2022 (end-December 2020: 2.3%), although absolute GILs increased by a marginal RM17 mil in the 15-month period on the back of small-ticket loan impairments. Relief loans stood at RM402 mil or 4.5% of gross loans as at end-May 2022, with non-household loans constituting the bulk of these exposures. While bad debts may emerge in the coming quarters in view of heightened macroeconomic risk, the Bank has built up substantial management overlays since the onset of the pandemic. GIL coverage (including regulatory reserves) was a solid 129% as at end-March 2022.
As a result of heftier net impairment charges and higher operating expenses, BOCM’s pre-tax profit declined 12% to RM96.4 mil in 2021, translating into a lower return on risk-weighted assets of 1.0% (2020: 1.8%). In 1Q FY Dec 2022, the Bank’s bottom line weakened by 20% y-o-y in the absence of a large provision writeback arising from loan recoveries seen in the previous corresponding period. BOCM’s net interest margin narrowed slightly to an annualised 1.5% in the same period (2020: 1.6%) owing to funding cost pressure, but the regulator’s hawkish stance on interest rates may lend some upside in the near term. Provisioning expenses are still a downside risk to the Bank’s profitability this year, given asset quality uncertainty.
As a relatively small foreign wholesale bank, BOCM faces some depositor concentration risk, with its top 10 non-bank depositors contributing 29% of customer deposits as at end-March 2022. The Bank is also highly reliant on fixed deposits, which constituted 70% of total deposits. Individual deposits, on the other hand, formed 44% of its deposit base, exceeding the industry average of 37%. Minimum liquidity coverage and net stable funding ratios were 124% and 109%, respectively, in 2021.
BOCM’s common equity tier-1 capital ratio was robust at 16.7% as at end-March 2022 (end-December 2020: 17.4%). The downtick in the 15-month period was largely attributed to a larger risk-weighted asset base amid strong loan growth. The application of a transitional arrangement, which will be completely phased out in 2024, boosted this metric by 47 bps.
Tan Shu Xuan
(603) 3385 2497
(603) 3385 2619
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Ratings on Bank of China (Malaysia) Berhad