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RAM Ratings affirms AAA rating of OCBC Malaysia
Published on 29 Aug 2023.
RAM Ratings has affirmed OCBC Bank (Malaysia) Berhad’s (OCBC Malaysia or the Bank) AAA/Stable/P1 financial institution ratings.
The rating affirmation reflects our expectation of strong parental support from Oversea-Chinese Banking Corporation Limited (OCBC Ltd or the Group) in times of need, given the Bank’s highly strategic role in supporting the Group’s regional growth ambitions and diversification objectives. The ratings also consider OCBC Malaysia’s good franchise, strong funding capabilities, robust capitalisation and healthy profit generation.
Excluding loan classification differences from industry norms1, OCBC Malaysia’s adjusted gross impaired loans (GIL) ratio weakened further to 3.5% as at end-March 2023 (industry: 1.7%) (end-December 2021: 2.9%), albeit partly skewed by a shrinking loan base. Non-retail portfolio has been the main source of OCBC Malaysia’s asset quality slippages since 2020. On the whole, the Bank’s larger mix of corporate and small and medium-size enterprise customers (which together account for 67% of total loans (industry: 41%)) makes it more sensitive to lumpy impairments, especially in a weaker macroeconomic environment.
Following large reversals of provisions, OCBC Malaysia’s adjusted GIL coverage ratio (including regulatory reserves) declined to 81.4% as at end-March 2023 (industry: 118%) (end-December 2021: 115.3%). The weaker-than-industry ratio is substantiated by OCBC Malaysia’s highly collateralised portfolio, conservative collateral valuation (based on forced sale values) and the management’s expectation of good recoveries.
OCBC Malaysia’s return on risk weighted assets (RoRWA) rose to 3.6% in FY Dec 2022 and 3.8% in 1Q FY Dec 2023 (FY Dec 2021: 1.6%), led by writebacks of loan impairment charges in the two periods. Its net interest margin was a broader 2.4% in 1Q FY Dec 2023 (FY Dec 2021: 2.1%; FY Dec 2022: 2.3%), thanks to a large share of current and savings account deposits. As credit cost normalises throughout 2023 and into 2024, we expect RoRWA to moderate to around 2.5%-2.7%, which is still healthy.
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1Excluding impaired retail loans that were less than 90 days past due.
Analytical contacts
Amy Lo
(603) 3385 2509
amy@ram.com.my
Sophia Lee
(603) 3385 2619
sophia@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 2023 by RAM Rating Services Berhad
