RAM Ratings reaffirms UOBM's AA1/P1 ratings, maintains positive outlook

Published on 13 June 2011
RAM Ratings has reaffirmed United Overseas Bank (M) Bhd’s (UOBM or the Bank) long-term financial institution ratings at AA1, with a positive outlook, while also reaffirming its P1 short-term rating. At the same time, the AA2 rating of the Bank’s RM500 million Subordinated Bonds has been reaffirmed, also with a positive outlook.

The outlook on UOBM’s long-term financial institution rating had been revised from stable to positive in September 2010, premised on the Bank’s improving asset-quality indicators. Its gross impaired-loan ratio had eased to 2.2% as at end-March 2011 (end-March 2010: 3.4%). While partly driven by a sizeable 24% loan growth in FY Dec 2010, the absolute value of the Bank’s gross impaired loans had also reduced, aided by stronger recoveries and fewer newly classified impaired loans. UOBM intends to expand its loan base by another 20% this year, with a focus on residential property mortgages and loans to small and medium-sized enterprises. Although RAM Ratings notes the improvements in the Bank’s loan-quality indicators, a longer track record will be required for an upgrade of its financial institution ratings given its relatively robust lending growth of late and aggressive loan-expansion targets.

Elsewhere, UOBM’s loans-to-deposits ratio has also been easing, albeit still at the higher end of the spectrum at 89% as at end-March 2011 (end-March 2010: 94%). In FY Dec 2010, the Bank’s credit-cost ratio came up to 0.6% (FY Dec 2009: 0.5%), primarily attributable to increased collective impairment provisions. Meanwhile, its overall and tier-1 risk-weighted capital-adequacy ratios stood at a sturdy 16.7% and 14%, respectively, as at end-December 2010 (end-December 2009: 14.9% and 13.1%).

With its strong loan expansion, higher fee income and manageable credit costs, UOBM’s commendable profit track record carried through to FY Dec 2010, when pre-tax profit advanced 20% to RM830 million (FY Dec 2009: RM689 million). For the same period, the Bank achieved a return on equity of 22% and a return on assets of 1.8% – exceeding the Malaysian banking industry’s respective averages of 16.5% and 1.5%. UOBM is well poised to benefit from the trend of rising interest rates this year, given that about 95% of its financing facilities bear floating rates.

RAM Ratings notes the financial flexibility and support UOBM derives from its parent, Singapore-domiciled United Overseas Bank Limited (UOB Singapore). Such support is expected to be readily extended if needed, as UOBM is key to UOB Singapore’s strategy of becoming a strong regional bank. The 1-notch differential between UOBM’s AA1 long-term financial institution rating and the AA2 rating of its Subordinated Bonds reflects the subordination of the debt facility to the Bank’s senior unsecured obligations.

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