RAM Ratings upgrades UOB Malaysia’s financial institution rating to AAA

Published on 30 July 2012

RAM Ratings has upgraded United Overseas Bank (Malaysia) Bhd’s (“UOBM” or “the Bank”) long-term financial institution rating, from AA1 to AAA; the short-term rating has been reaffirmed at P1. Concurrently, we have also upgraded the rating of the Bank’s RM500 million Subordinated Bonds (2010/2020), from AA2 to AA1. The outlook on both long-term ratings has been revised from positive to stable. The 1-notch differential between UOBM’s AAA long-term financial institution rating and the AA1 rating of its Subordinated Bonds reflects the subordination of the debt facility to the Bank’s senior unsecured obligations.

UOBM is wholly owned by United Overseas Bank Limited (“UOBL”), Singapore’s third-largest bank. Among UOBL’s regional subsidiaries, UOBM is the largest by assets and profit contribution – underscoring our view that the Bank is key to its parent’s strategy of becoming a strong regional bank. Mirroring UOBL’s business position, the Bank has established its franchise in retail property mortgages and also small- and medium-sized enterprises in Malaysia.

The rating upgrade takes note of UOBM’s loan-quality indicators that have been consistently well placed among AAA-rated banks, as well as the sustained improvement in the Bank’s profit performance. Notably, UOBM’s gross impaired-loan ratio of 1.8% as at end-March 2012 is better than the banking system’s average of 2.5%. In addition, its credit-cost ratio had improved to 0.4% as at end-December 2011 (end-December 2010: 0.7%). The Bank’s credit fundamentals are envisaged to hold up even though the default rates for its property loans are expected to inch up as its portfolios season, following the rapid growth in the last 2 years.

In tandem with its stronger loan growth, UOBM’s pre-tax profit jumped from RM0.8 billion in fiscal 2010 to RM1.0 billion in fiscal 2011; this resulted in a healthy return on assets of 1.7% and a return on equity of 23.5%. For the first quarter of fiscal 2012, the Bank registered a pre-tax profit of RM258.8 million. Meanwhile, UOBM possesses a stable funding profile. Its tier-1 and overall risk-weighted capital-adequacy ratios of a respective 11.6% and 13.8% as at end-March 2012 underline its healthy capitalisation levels, which act as a buffer against potential credit losses.

Media contact
Peter Kong
(603) 7628 1029
peterkong@ram.com.my