RAM Ratings reaffirms OCBC's AAA rating

Published on 10 July 2015

RAM Ratings has reaffirmed OCBC Bank (Malaysia) Berhad’s (OCBC Malaysia 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 (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 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 Malaysia has an established franchise among mid-sized corporates and SMEs as well as in property financing. The Bank is wholly owned by Oversea-Chinese Banking Corporation Limited (OCBC Ltd or the Group), South-east Asia’s second-largest financial services group. Besides being one of the Group’s biggest asset and profit contributors outside Singapore, OCBC Malaysia’s business strategies are also closely aligned to those of the Group. Given this, we believe that OCBC Malaysia will be able to count on parental support, if required. This is in line with RAM’s Group Rating Methodology for Banks, published on 17 June 2015.
OCBC Malaysia’s asset quality has remained healthy. While the Bank’s gross impaired-loan (GIL) ratio had eased to 2.0% as at end-December 2014 (end-December 2013: 2.3%), its credit-cost ratio had risen to 0.5%, partly due to a refinement of its model for loan-loss impairment. The Bank had also made some impairment allowances on a corporate exposure that was classified as impaired in May 2013. As a result, its GIL coverage ratio had improved to 78.8%, albeit still lower than the industry average of 100%.
Given the rapid growth of the Bank’s residential mortgages in the last few years, OCBC Malaysia’s exposure to property-related financing had increased to 52% of its loan book as at end-December 2014 (end-December 2010: 43%). While we are cognisant of the increased concentration, the asset quality of this segment is expected to stay healthy. As at end-December 2014, the Bank remained well capitalised, with respective common-equity tier-1 and total capital ratios of 12.0% and 16.4%.

Media contact
Chew Wei Li
(603) 7628 1025
weili@ram.com.my