[RAM] RAM Ratings affirms UOB Malaysia's AAA rating; outlook stable

RAM Ratings has affirmed United Overseas Bank (Malaysia) Bhd’s (UOB Malaysia or the Bank) AAA/Stable/P1 financial institution ratings as well as the ratings of its debt instruments (Table 1). The rating action reflects the Bank’s entrenched domestic presence, healthy funding profile and satisfactory asset quality and profitability indicators. Based on our rating criteria, the Bank stands to benefit from a very high likelihood of parental support from United Overseas Bank Limited if needed, given its strategic importance. However, no support uplift is factored into its ratings, reflecting the Bank’s already strong standalone credit profile. 

UOB Malaysia remains the largest locally incorporated foreign bank in Malaysia by total assets. The acquisition of Citibank Berhad’s consumer banking business was fully integrated into the Bank’s retail franchise last year, augmenting its base of affluent and mass affluent customers, providing opportunities for cross-selling and strengthening its market position. The Bank is currently one of the largest credit card players in Malaysia, alongside being a notable player in SME lending and residential property mortgages. 

As at end-June 2024, UOB Malaysia’s gross impaired loan ratio came up to 2.6% (end-December 2022: 2.7%), still above the industry’s 1.6% partly due to the Bank’s more conservative approach to borrower impairment. The Bank recorded a credit cost ratio of 27 bps in FY Dec 2023 (FY Dec 2022: 17 bps), and a net write back of 13bps in 1H FY Dec 2024. Its strategic shift towards growing trade loans, which typically carry lower credit risk and shorter tenures, should bode well towards improving its asset quality. 

Excluding one-off acquisition and integration-related costs, UOB Malaysia’s underlying pre-tax profit grew by 5.5% in FY Dec 2023, while its return on risk weighted assets (RoRWA) stayed unchanged y-o-y at 2.5%. Stable margins coupled with broader investment and fee income helped offset the higher operating expenses following the acquisition. Performance in 1H FY Dec 2024 was further boosted by net writebacks of provisions. As credit costs normalise, we envisage RoRWA to stay slightly below 3% in the medium term. Notably, fee income from its expanded credit card portfolio – along with other sources of non-interest income – now accounts for 35% of the Bank’s gross income in both FY Dec 2023 (FY Dec 2022: 28%). 

On the capital front, UOB Malaysia’s common equity-tier 1 capital ratio improved to 16.2% as at end-June 2024 (industry: 14.3%) (end-December 2022: 14.7%). While the Bank resumed dividend distributions last year, we expect the Bank to maintain healthy capital levels underpinned by its sustainable earnings and measured loan expansion.

Table 1: UOB Malaysia’s issue ratings



Analytical contacts
Amy Lo 
(603) 3385 2509
amy@ram.com.my

Lee Yee Von
(603) 3385 2503
yeevon@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my