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RAM Ratings affirms OCBC Malaysia’s AAA rating
Published on 30 Aug 2024.
RAM Ratings has affirmed OCBC Bank (Malaysia) Berhad’s (OCBC Malaysia or the Bank) AAA/Stable/P1 financial institution ratings.
The rating affirmation reflects OCBC Malaysia’s good franchise, healthy profit generation, and robust capitalisation and funding capabilities. It also considers an uplift based on our expectation of strong parental support from Oversea-Chinese Banking Corporation Limited (OCBC Ltd or the Group) in times of need. The Bank is deemed a core subsidiary of OCBC Ltd, given its highly strategic role in supporting the Group’s regional growth ambitions and diversification objectives.
Excluding loan classification differences from industry norms, OCBC Malaysia’s adjusted gross impaired loans ratio fell to 2.5% as at end-March 2024 (industry: 1.6%; end-December 2022: 3.5%), thanks to smaller impairment inflows, still strong loan recoveries and internal upgrades to non-credit impaired. Overall asset quality improved in the absence of sizeable corporate impairments, alongside better showing from all portfolios. Nevertheless, the Bank’s larger share of non-household customers (69% against industry average of 41%) makes it more sensitive to lumpy impairments, especially in a weaker macroeconomic environment. Excluding the more granular and well-diversified small and medium size enterprises, its exposure would be a smaller 51%. Adjusted loan loss coverage ratio (including regulatory reserves) returned to above 100% (end-March 2024: 109%; end-December 2022: 82%) while the Bank’s loan book remained highly collateralised.
OCBC Malaysia’s pre-provision profit rose 9.4% y-o-y to RM1.67 bil in FY Dec 2023, backed by a wider net interest margin (+0.1 pp to 2.4%) that bucked the industry contraction trend and a surge in investment income. Margin expansion was driven by an overnight policy rate hike in May last year, alongside the Bank’s large proportion of current and savings account deposits. OCBC Malaysia also had a higher loan-to-deposit ratio and a reduced proportion of cash holdings than the prior year. Without net loan impairment writebacks recorded a year prior, the Bank’s return on risk weighted assets (RoRWA) for FY Dec 2023 was a lower 2.8% (FY Dec 2022: 3.6%). It maintained a healthy earnings profile in 1Q FY Dec 2024. Improved loan recoveries led to another round of net loan impairment writebacks and increased its RoRWA to an annualised 3.1%.
Analytical contacts
Chu Jia Ying
(603) 3385 2519
jiaying@ram.com.my
Johan Faizul
(603) 3385 2518
johan@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 2024 by RAM Rating Services Berhad
