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RAM Ratings upgrades Bank of China (Malaysia) to AAA
Published on 16 Dec 2024.
RAM Ratings has upgraded Bank of China (Malaysia) Berhad’s (BOCM or the Bank) financial institution ratings from AA1/Stable/P1 to AAA/Stable/P1.
The upgrade is premised on RAM’s assessment of parental support under its master criteria for group structure linkages introduced in October 2024. Wholly owned by Bank of China (Hong Kong) Limited (BOCHK) and ultimately owned by Bank of China Limited (BOC or the Group), BOCM derives support from both parents. In line with the consideration under the enhanced criteria for a strong subsidiary and weak parent, support for BOCM from its intermediate parent, BOCHK, is no longer constrained by its lower-rated ultimate parent, BOC as we view the relationship between BOCHK and BOC to be fairly independent. As BOCHK is a listed domestic systemically important bank regulated by the Hong Kong Monetary Authority, the likelihood of negative intervention from BOC is relatively low.
A key contributor among BOCHK’s ASEAN subsidiaries, BOCM plays a crucial role in expanding the Group’s presence in Southeast Asia. Given its strategic importance, the Bank’s ratings incorporate a rating uplift, reflecting a “high likelihood” of support from BOCHK. The ratings also consider BOCM’s robust capitalisation and sound asset quality. Moderating these credit strengths, however, are the Bank’s weaker-than-peer profitability, high borrower and depositor concentration risks, and its smaller domestic franchise vis-à-vis larger peers.
BOCM’s risk profile is healthier after the tightening of its underwriting standards in recent years. Its gross impaired loans (GIL) ratio eased to 3.4% as at end-September 2024 (end-December 2022: 4.2%) while its net newly classified impaired loan ratios were a benign 0.15% and a net writeback of 0.16% (annualised), respectively, in FY Dec 2023 and 9M FY Dec 2024. Stage 2 loans as a proportion of gross loans were also low at 2% as at end-September 2024 (end-December 2022: 6%), while loans under restructuring and rescheduling were minimal as at end-June 2024. As around one-third of corporate loans were deemed secured, GIL coverage stayed moderate at 69% as at end-September 2024. We expect downside risks to asset quality deterioration to be manageable.
Owing to a higher proportion of low-cost current and savings account deposits (end-December 2023: 38.9%; end-December 2022: 34.2%) and strong business expansion, the Bank’s net interest margin widened to 2.0% in FY Dec 2023 from 1.8% a year ago. Coupled with better trading gains and fee income, BOCM’s bottom line increased to RM211.4 mil (FY Dec 2022: RM159.0 mil), translating into a return on risk-weighted assets (RoRWA) of 1.9% (FY Dec 2022: 1.6%). The three-year average RoRWA of 1.5%, while remaining weaker than peers’ (three-year average RoRWA: 3.2%), is on an improving trend, as seen in the annualised figure of 2.8% for 9M fiscal 2024.
Solid capitalisation, with a common equity tier-1 capital ratio of 16.4% as at end-September 2024, affords BOCM a sizeable cushion against potential credit deterioration, supporting business growth. Average liquidity coverage and net stable funding ratios were a robust 238.1% and 127.8%, respectively, in 1H FY Dec 2024. Committed liquidity lines are also available from both BOCHK and BOC, if needed.
Analytical contacts
Sean Lim, CFA
(603) 3385 2550
sean@ram.com.my
Lee Yee Von
03 3385 2503
yeevon@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
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