RAM Ratings assigns AA1 rating to OCBC Malaysia’s proposed redeemable subordinated bonds of up to RM600 million

Published on 27 July 2012

RAM Ratings has assigned a long-term rating of AA1 to OCBC Bank (Malaysia) Berhad’s (“OCBC” or “the Bank”) proposed Redeemable Subordinated Bonds of up to RM600 million. At the same time, OCBC’s respective long- and short-term financial institution ratings have been reaffirmed at AAA and P1. The Bank’s existing issue ratings have also been reaffirmed (refer to Table 1 below). All the long-term ratings have a stable outlook.

Instrument	Rating action	Rating	Outlook
RM400 million Preference Shares Issue	Reaffirmed	AA2	Stable
RM200 million Islamic Subordinated Bonds (2006/2021)	Reaffirmed	AA1	Stable
RM400 million Subordinated Bonds (2007/2017)	Reaffirmed	AA1	Stable
RM400 million Innovative Tier-1 Capital Securities (2009/2039)	Reaffirmed	AA2	Stable
RM500 million Redeemable Subordinated Bonds (2010/2020)	Reaffirmed	AA1	Stable
Proposed Redeemable Subordinated Bonds of up to RM600 million	Assigned	AA1	Stable
Note: A 1-notch differential between OCBC’s long-term financial institution rating and its issue rating reflects the subordination of the debt facility to the Bank’s senior unsecured obligations. A 2-notch rating differential reflects the deeply subordinated nature and embedded interest-deferral feature of the rated instrument.

OCBC is wholly owned by Oversea-Chinese Banking Corporation Limited (“OCBC Ltd”), South-east Asia’s second-largest banking group. Given that Malaysia represents OCBC Ltd’s biggest asset and profit contributor outside of Singapore, we believe that parental support will be readily extended, if needed.

As at end-March 2012, OCBC’s lending portfolio had expanded to RM43 billion (end-December 2010: RM36 billion). Despite the larger base, the Bank’s gross impaired-loan ratio edged up to 3.0% as at the same date (end-December 2010: 2.8%), a result of 2 lumpy exposures that had turned impaired. Nonetheless, both of these impaired loans had collateral coverage of more than 1 time and no provision had been required, thereby keeping the Bank’s credit-cost ratio at a healthy 0.33% in fiscal 2011 (fiscal 2010: 0.35%). Further, one of these impaired loans had been reclassified as performing as at end-June 2012. Excluding the 2 above mentioned large accounts, the credit quality of the Bank’s remaining portfolio has broadly improved.

As at end-March 2012, OCBC’s loans-to-deposits ratio had eased to 77% (end-December 2010: 81%), thanks to a strong inflow of deposits in the first quarter of the year. Moving ahead, this ratio is likely to be kept within 80%–90%, which falls within the norms of its domestic peers. In terms of financial performance, the Bank’s pre-tax profit was lifted 5% year-on-year to RM1.0 billion in fiscal 2011 (fiscal 2010: RM0.95 billion), on the back of strong loan growth. OCBC remained well capitalised with respective tier-1 and overall risk-weighted capital-adequacy ratios of 12.4% and 14.8% as at end-March 2012.

Media contact
Lim Yu Cheng
(603) 7628 1188
yucheng@ram.com.my