RAM Ratings reaffirms OCBC Malaysia’s ratings

RAM Ratings reaffirms OCBC Malaysia’s ratings

Published on 30 June 2014 

RAM Ratings has reaffirmed OCBC Bank (Malaysia) Berhad’s (or the Bank) AAA/Stable/P1 financial institution ratings. Concurrently, the Bank’s issue ratings have also been reaffirmed.

Instrument	Rating	Outlook
RM600 million Redeemable Subordinated Bonds (2012/2022)1	AA1	Stable
RM500 million Redeemable Subordinated Bonds (2010/2020) 1	AA1	Stable
RM400 million Innovative Tier-1 Capital Securities (2009/2039)2	AA2	Stable
RM200 million Islamic Subordinated Bonds (2006/2021)1	AA1	Stable
RM400 million Preference Shares Issue2	AA2	Stable
Notes: 1 The 1-notch rating differential between OCBC’s AAA long-term financial institution rating and the AA1      ratings of its Subordinated Notes reflects the subordination of the debt facilities to the Bank’s senior     unsecured obligations. 2 The 2-notch rating differential between OCBC’s AAA long-term financial institution rating and the AA2     ratings of its Innovative Tier-1 Capital Securities and Preference Shares Issue reflect the deeply     subordinated nature and embedded interest-deferral feature of the hybrid instruments.

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 ready support from OCBC Ltd in times of need.

As at end-December 2013, OCBC’s asset quality remained healthy despite a slight increase in its gross impaired-loan (GIL) ratio to 2.3% (end-December 2012: 2.0%). The uptick was primarily due to a business loan to the manufacturing sector. At the same time, the Bank's GIL coverage ratio had been reduced to 60.2% (end-December 2012: 81.1%) as only a minimum provision was made on the newly impaired loan, given that it is fully collateralised by the borrower’s assets. While we also note the rapid growth of 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 is deemed comfortable at 88.4%. 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 3.3% in fiscal 2013, which is one of the highest among its peers). As at end-December 2013, the Bank's common-equity tier-1 ratio and total capital ratio came up to a respective 11.6% and 16.6%, which are considered solid relative to its risk profile.

Media contact
Gladys Chua
(603) 7628 1049
gladys@ram.com.my