RAM Ratings reaffirms OSK Investment Bank’s A1/P1 ratings, with stable outlook

Published on 31 October 2012

RAM Ratings has reaffirmed OSK Investment Bank Berhad’s (“OSK Investment Bank’’ or “the Bank”) long- and short-term financial institution ratings at A1 and P1, respectively. Concurrently, the A2 rating of the Bank’s medium-term notes (“MTN”) issued under its RM400 million MTN Programme has been reaffirmed. Both the long-term ratings have a stable outlook. The 1-notch rating differential between the long-term financial institution rating and the MTN’s reflects the subordination of the MTN to the Bank’s senior unsecured obligations.

The ratings reflect the Bank’s established position in the stockbroking industry, geographical earnings diversification potential and sturdy capitalisation level. The ratings are however moderated by keen competition in the stockbroking and investment banking arena, the Bank’s exposure to the volatile capital markets and its current position as a stand-alone investment bank.

In FYE 31 December 2011 (“FY Dec 2011”), OSK Investment Bank’s pre-tax profit plunged to RM52.38 million (FY Dec 2010: RM133.18 million), mainly due to a significant RM70.08 million impairment loss on securities and RM25.00 million of non-recurring costs. In 1H FY Dec 2012, the Bank’s pre-tax profit of RM70.31 million was also weaker (1H FY Dec 2011: RM74.37 million), largely due to lower brokerage fees. In spite of this, OSK Investment Bank remained well capitalised, with respective tier-1 and overall risk-weighted capital-adequacy ratios (“RWCARs”) of 25.71% and 33.56% at the end of the period.

Meanwhile, RAM Ratings is monitoring developments in respect of the proposed acquisition of OSK Investment Bank by RHB Capital Berhad, and the subsequent proposed merger with RHB Investment Bank Berhad (“RHB Investment”, currently rated AA2/stable/P1 by RAM Ratings). The proposed merger could see the Bank’s mainly retail-oriented stockbroking operations complement RHB Investment’s institutionally focused business, and will create the largest stockbroker in Malaysia. Once the proposed merger is completed, the financial institution ratings of OSK Investment Bank will cease to exist while the rating of the MTN will be 1 notch lower than the long-term financial institution rating of the merged investment bank.

Media contact

Michael Ti

(603) 7628 1015

michael@ram.com.my