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RAM Ratings affirms Bank of China (Malaysia)’s AA1 rating
Published on 11 Oct 2023.
RAM Ratings has affirmed Bank of China (Malaysia) Berhad’s (BOCM or the Bank) AA1/Stable/P1 financial institution ratings.
The ratings incorporate our expectation of strong parental support from Bank of China (Hong Kong) limited – the Bank’s intermediate parent – and Bank of China Limited, its ultimate parent. BOCM’s robust capitalisation also supports the rating, providing an ample loss absorption buffer for potential credit deterioration. While the Bank’s asset quality has weakened in recent quarters, it remains within a manageable level.
Several accounts under relief measures had turned impaired during the year, lifting the Bank’s gross impaired loans (GIL) ratio to 4.0% as at end-June 2023 (end-December 2021: 2.2%). As a result, BOCM’s GIL coverage ratio fell to 62% as at the same date (end-December 2021: 124.5%), given the highly collateralised nature of the newly impaired loans. Nonetheless, downside risks to further asset quality deterioration are expected to be manageable. Given BOCM’s exposure to large corporates and multinational companies, the Bank is inherently exposed to loan and deposit concentration risk.
Benefiting from rising interest rates and a higher proportion of low-cost current and savings account deposits (end-December 2022: 34.2%; end-December 2021: 27.9%), the Bank’s net interest margin widened to 1.8% in FY Dec 2022 (FY Dec 2021: 1.6%). Coupled with lower impairment charges and better trading gains, BOCM’s bottom line increased to RM159.0 mil (FY Dec 2021: RM96.4 mil). This translated into a return on risk-weighted assets (RoRWA) of 1.6% (FY Dec 2021: 1.0%). While BOC’s three-year average RoRWA of 1.2% remained weaker than its peers (ranging from 1.6% to 2.5%), it is on an improving trend, as observed in 1H fiscal 2023, with an annualised RoRWA of 2.2%.
BOCM’s solid capitalisation, with a common equity tier-1 capital ratio of 15.4% as at end-June 2023, affords the Bank sizeable cushion against potential credit deterioration and supports business growth. BOCM remained a small player in the local banking industry with modest market share.
Analytical contacts
Lee Jo Yee
(603) 3385 2583
joyee@ram.com.my
Sophia Lee
(603) 3385 2619
sophia@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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
