RAM Ratings reaffirms OCBC Malaysia’s ratings

Published on 12 December 2012

RAM Ratings has reaffirmed OCBC Bank (Malaysia) Berhad’s (“OCBC” or “the Bank”) respective long- and short-term financial institution ratings at AAA and P1. The issue ratings of the Bank have also been reaffirmed (refer to Table 1). All the long-term ratings have a stable outlook.

Table 1: OCBC’s issue ratings

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 Innovative Tier-1 Capital Securities (2009/2039)	Reaffirmed	AA2	Stable
RM500 million Redeemable Subordinated Bonds (2010/2020)	Reaffirmed	AA1	Stable
Redeemable Subordinated Bonds of up to RM600 million (2012/2022)	Reaffirmed	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.

The ratings reflect OCBC’s healthy credit fundamentals and established franchise among mid-sized corporates as well as small and medium-sized enterprises (“SMEs”). The Bank accounts for some 5% of the system’s outstanding SME financing. OCBC is owned by Oversea-Chinese Banking Corporation Limited (“OCBC Ltd” or “the Group”), i.e. South-east Asia’s second-largest banking group. As part of OCBC Ltd, the Bank benefits from the Group’s regional network, franchise and best practices. Given that OCBC represents the Group’s largest profit contributor outside of Singapore, we believe that parental support will be readily extended, if needed.

Loans to corporates and SMEs dominate OCBC’s loan portfolio, accounting for a respective 39% and 18% of its loan base as at end-June 2012. The corporate- and commercial-banking divisions have been the Bank’s key earnings drivers, collectively accounting for about 66% of its operating revenue in FYE 31 December 2011 (“FY Dec 2011”). In terms of retail lending, its core business lies in the financing of residential properties, which has been charting a strong loan growth of over 20% per annum for the last 2 years.

OCBC’s asset-quality indicators are considered healthy, as reflected by its gross impaired-loan (“GIL”) ratio of 2.3% and credit-cost ratio of 0.2% (annualised) as at end-June 2012. The Bank’s full adoption of Malaysian Financial Reporting Standards 139 on 1 January 2012 had led to a drop in its GIL coverage ratio to 74.3% as at end-June 2012 (end-December 2011: 92.0%), albeit still deemed adequate. On the funding front, OCBC’s loans-to-deposits (“LD”) ratio had improved from 87% to about 80% over the same span, thanks to a strong inflow of deposits following a deposit campaign. Moving forward, the Bank intends to keep its LD ratio within a healthy range of 80%–90%.

We note that OCBC has maintained a sturdy profit track record. The Bank’s return on risk-weighted assets has been holding steady at 2.8% over the past 2 years. Its healthy profit accumulation has aided the establishment of a solid capital base; its tier-1 risk-weighted capital-adequacy ratio stood at 13.2% as at end-June 2012.

Media contact
Amy Lo
(603) 7628 1078
amy@ram.com.my