RAM Ratings has reaffirmed OCBC Bank (Malaysia) Berhad’s (OCBC Malaysia or the Bank) AAA/Stable/P1 financial institution ratings (FIRs)

Published on 27 June 2016

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

Instrument	Rating	Outlook
RM600 million Redeemable Subordinated Bonds (2012/2022)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
Notes: 1 The 1-notch rating differential between OCBC’s AAA long-term FIR and the AA1 ratings of its Subordinated Bonds 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 FIR and the AA2 rating of its Innovative Tier-1 Capital Securities reflect the deeply subordinated nature and embedded interest-deferral feature of the hybrid instruments.

OCBC Malaysia’s FIRs reflect its established business franchise, healthy asset quality and sound capitalisation. As a strategically important part of the Oversea-Chinese Banking Corporation Limited (OCBC Ltd) group, the Bank features prominently in its parent’s business strategies, accounting for 8.5% of the latter’s pre-tax profit in fiscal 2015.

While OCBC Malaysia’s gross impaired-loan (GIL) ratio stayed relatively stable at 2.1% as at end-December 2015 (end-December 2014: 2.0%), its credit cost ratio remained moderate at 44 bps in the 2015 fiscal year. This primarily reflects impairment charges on several corporate accounts, including additional provisions on the Bank’s exposure to a troubled steel firm. The Bank’s sizeable residential and non-residential property loan exposure – which constituted about 43% of its loans – renders it vulnerable to a severe downturn in this sector, although the latter is deemed unlikely at the moment. Although we expect some weakening in the Bank’s loan quality as the credit cycle turns, any such deterioration is envisaged to be tolerable. As at end-March 2016, the Bank’s GIL ratio remained unchanged at 2.1%.

The Bank’s funding and liquidity position is considered moderate. As the pace of its loans growth outstripped that of deposits in fiscal 2015, OCBC’s loans-to-deposits ratio had climbed up to 93% as at end-December 2015 (end-December 2014: 88%). While this ratio eased slightly to 91.8% as at end-March 2016, its liquidity coverage ratio of 85% as at the same date was weaker than the industry’s 126%.

OCBC Malaysia’ common equity tier-1 capital ratio stayed sound at 11.1% as at end-March 2016 (end-December 2014: 12.0%). At the same time, its total capital ratio of 15.9% was supported by OCBC Ltd’s recent subscription of the Bank’s Basel III-compliant additional tier-1 and tier-2 capital securities. We expect the Bank to be able to count on ready parental support, if required.

Media contact
Joanne Kek
(603) 7628 1163
joanne@ram.com.my