This left the Bank with a substantially lower pre-tax profit of RM0.7 bil (FY Dec 2019: RM1.2 bil), translating into a return on risk weighted assets of 1.5%.

Capitalisation stayed strong, the Bank’s common equity tier-1 capital ratio standing at 15.3% as at the same date, which fortifies the buffer against heightened credit risk.Īround half of OCBC Malaysia’s pre-provision profit in FY Dec 2020 was erased by heftier provisioning expenses. As a result of an enlarged impaired loan base, GIL coverage (including regulatory reserves) was a lower but still healthy 93% as at end-March 2021 (end-December 2019: 112%). However, the writeback of provisions for non-credit-impaired loans owing to the better economic outlook saw its annualised credit cost ratio coming in at just 2 bps in 1Q FY Dec 2021.

Heftier actual impairment charges, management overlay and an adjustment of macroeconomic variables in its provisioning model caused OCBC Malaysia’s credit cost ratio to jump to 97 bps in FY Dec 2021 (FY Dec 2019: 31 bps). Considering the Bank’s increasing susceptibility to lumpy corporate impairments, we remain wary of further defaults, particularly those from vulnerable segments amid the pandemic. The proportion of Stage 2 loans was sizeable at 20.3% as at end-March 2021, partly owing to the pre-emptive downgrade of most retail loans under repayment assistance. We also observed weakness in the Bank’s retail book despite ongoing relief measures. Deterioration mainly stemmed from a handful of lumpy corporate impairments. The Bank’s loss absorption buffers however should provide enough headroom to withstand potentially greater impairments.Īsset quality was weaker than expected, with the Bank’s gross impaired loan (GIL) ratio surging to 3.3% as at end-March 2021 from 2.0% as at end-December 2019.

OCBC Malaysia’s asset quality remains weaker than similarly rated peers’, with the recent rise in Covid-19 infections and an extended lockdown compounding downside risk. The reaffirmation is premised on our expectation of ready parental support from Oversea-Chinese Banking Corporation Limited (OCBC Ltd), if required, in view of the Bank’s strategic importance to the latter. RAM Ratings has reaffirmed OCBC Bank (Malaysia) Berhad’s (OCBC Malaysia or the Bank) AAA/Stable/P1 financial institution ratings.

RAM Ratings reaffirms OCBC Malaysia’s AAA rating

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