RAM Ratings reaffirms OCBC’s ratings

Published on 21 August 2013

RAM Ratings has reaffirmed OCBC Bank (Malaysia) Berhad’s (“OCBC” or “the Bank”) financial institution ratings at AAA/Stable/P1. The issue ratings of the Bank have also been reaffirmed (refer to Table 1 below).

Table 1: OCBC’s issue ratings

Instrument	Rating Action	Rating
RM600 million Redeemable Subordinated Bonds   (2012/2022)	Reaffirmed	AA1/Stable/-
RM500 million Redeemable Subordinated Bonds   (2010/2020)	Reaffirmed	AA1/Stable/-
RM400 million Innovative Tier-1 Capital Securities   (2009/2039)	Reaffirmed	AA2/Stable/-
RM200 million Islamic Subordinated Bonds   (2006/2021)	Reaffirmed	AA1/Stable/-
RM400 million Preference Shares Issue	Reaffirmed	AA2/Stable/-

Note:
A 1-notch differential between OCBC’s long-term financial institution rating and 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’s ratings remain driven by its healthy credit fundamentals and established franchise among mid-sized corporates and SMEs. The Bank is wholly owned by Oversea-Chinese Banking Corporation Limited ("OCBC Ltd" or "the Group"), i.e. South-east Asia’s second-largest banking group, and represents the Group's largest profit contributor outside of Singapore. As part of OCBC Ltd, the Bank benefits from its parent's strong branding, regional network and best practices. Given its ownership and OCBC's strategic importance to the Group, we expect support from OCBC Ltd to be forthcoming in times of need.

OCBC's asset quality has stayed healthy and remains favourable vis-à-vis its AAA-rated peers. The Bank's gross impaired-loan ("GIL") ratio had eased to 1.8% as at end-March 2013 (end-March 2012: 3.0%), with net impairment write-backs in 1Q FY Dec 2013. At the same time, the Bank's GIL coverage ratio stood at a comfortable 84.8% - lower than the industry average given its relatively larger exposure to property financing, for which impairment provisions are net of collateral values. While we note the rapid growth in the Bank’s residential mortgages in recent years, their credit quality has held up well.

On the funding front, OCBC's loans-to-deposits ratio has been stable at about 85%–87% since 2011, in line with the Bank’s targeted 80%–90%. The Bank has maintained a sturdy profit track record, as demonstrated by the consistent growth of its bottom line and healthy profitability indicators (i.e. a return on risk-weighted assets of 2.9% in fiscal 2012). As at end-March 2013, the Bank's common-equity tier-1 ratio and overall risk-weighted capital-adequacy ratio came up to a respective 11.4% and 16.3%, which are considered solid relative to its risk profile. 

Media contact
Kwan Ji-Ling
(603) 7628 1115
jiling@ram.com.my