Published on 30 Mar 2023.
RAM Ratings has assigned respective AAA/Stable and AA1/Stable ratings to United Overseas Bank (Malaysia) Bhd’s (UOB Malaysia or the Bank) proposed RM5 billion Senior Medium-Term Notes and Basel III Compliant Tier-2 Subordinated Islamic Medium-Term Notes. The single-notch differential reflects the subordination of the latter to the Bank’s senior unsecured obligations. Concurrently, we have reaffirmed the Bank’s AAA/Stable/P1 financial institution ratings as well as the ratings of its existing debt instruments (Table 1).
UOB Malaysia is a 100%-owned subsidiary of United Overseas Bank Limited (UOB or the Group). The Bank is the Group’s second largest asset and profit contributor outside Singapore as at end-December 2022. Given its high strategic importance to the Group, parental support is expected to be readily available in times of need. The Bank has an entrenched domestic franchise, robust capitalisation, sound asset quality, and a superior funding and liquidity profile. The completion of UOB Malaysia’s acquisition of Citibank Berhad’s (Citi Malaysia) consumer banking business on 1 November 2022 is anticipated to strengthen the Bank’s domestic presence and earnings prospect.
As at end-September 2022, the Bank’s gross impaired loans (GIL) ratio remained relatively elevated at 2.8% (end-December 2021: 2.6%) due to its conservative GIL reclassification policy under which impaired loans regain performing status only upon regularisation of all arrears. UOB Malaysia’s GIL coverage was lower at 89% (end-December 2021: 100%), as the newly impaired loans are mostly collateralised. The Bank’s largely well-secured loan book and track record of prudent risk management should keep asset quality risks contained.
UOB Malaysia’s capitalisation level stayed robust as at end-September 2022, with common equity tier-1 and total capital ratios at 17.9% and 20.7%, respectively. Although the acquisition of Citi Malaysia’s consumer banking business will erode capitalisation, healthy earnings accretion will allow the Bank to gradually rebuild it.
The absence of hefty impairment charges, in line with economic recovery, lifted pre-tax profit to RM1.7 bil in 9M FY Dec 2022 (9M FY Dec 2021: RM1.2 bil). Net interest margins (NIMs) averaging a healthy 2.0% in the last three years contributed to the gradual improvement of profitability. The Bank’s NIM will benefit from the acquisition of Citi Malaysia’s higher-yielding portfolio but will be moderated by stiff deposit competition.
Table 1: UOB Malaysia’s issue ratings
Lee Jo Yee
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Ratings on United Overseas Bank (Malaysia) Bhd