RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Pac Lease Berhad’s (PacLease or the Company) CP/MTN

Published on 22 August 2016

RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Pac Lease Berhad’s (PacLease or the Company) CP/MTN Issuance Programme of up to RM500 million (2011/2018). The ratings incorporate our expectation that PacLease, as a wholly owned subsidiary of Oversea-Chinese Banking Corporation Limited (the Group), will continue to enjoy funding and operational support from either OCBC Bank (Malaysia) Berhad (rated AAA/Stable/P1 by RAM) or the Group, if needed.

PacLease’s asset-quality indicators improved in FY Dec 2015, with its gross impaired-loan (GIL) ratio easing from 2.0% to 1.4%. Higher recoveries and write-downs on impaired loans had contributed to the improvement. While the Company’s credit-cost ratio rose from 78 bps in 2014 to 84 bps in 2015, the increase was mainly due to more conservative provisioning, which strengthened its GIL coverage ratio from 98% to 137%. However, the Company’s asset quality may come under pressure amid the more challenging economic environment, especially given its SME-centric client base.

As a non-deposit-taking entity, PacLease relies on wholesale borrowings to fund its lending business, thereby exposing the Company to refinancing risk. Nonetheless, we derive comfort from its ability to turn to OCBC Malaysia for funding and liquidity support. The Company’s gearing ratio of 4.2 times as at end-December 2015 is also considered comfortable.

Meanwhile, PacLease’s profitability remains sound, supported by its wide-margin products. In FY Dec 2015, the Company’s net interest margin and ROA came in at a relatively high 5.0% and 2.5%, respectively. Nonetheless, its ROA has declined from the 2.9% of the previous year, as a result of margin compression amid keen competition, higher operational costs and elevated general allowances.

Media contact
Yong Jia Zheng
(603) 7628 1055
jiazheng@ram.com.my