[RAM] RAM Ratings upgrades Bank of China (Malaysia) to AAA

RAM Ratings has upgraded Bank of China (Malaysia) Berhad’s (BOCM or the Bank) financial institution ratings from AA₁/Stable/P1 to AAA/Stable/P1.

The upgrade is premised on RAM’s assessment of parental support under its master criteria for group structure linkages introduced in October 2024. Wholly owned by Bank of China (Hong Kong) Limited (BOCHK) and ultimately owned by Bank of China Limited (BOC or the Group), BOCM derives support from both parents. In line with the consideration under the enhanced criteria for a strong subsidiary and weak parent, support for BOCM from its intermediate parent, BOCHK, is no longer constrained by its lower-rated ultimate parent, BOC as we view the relationship between BOCHK and BOC to be fairly independent. As BOCHK is a listed domestic systemically important bank regulated by the Hong Kong Monetary Authority, the likelihood of negative intervention from BOC is relatively low. 

A key contributor among BOCHK’s ASEAN subsidiaries, BOCM plays a crucial role in expanding the Group’s presence in Southeast Asia. Given its strategic importance, the Bank’s ratings incorporate a rating uplift, reflecting a “high likelihood” of support from BOCHK. The ratings also consider BOCM’s robust capitalisation and sound asset quality. Moderating these credit strengths, however, are the Bank’s weaker-than-peer profitability, high borrower and depositor concentration risks, and its smaller domestic franchise vis-à-vis larger peers. 

BOCM’s risk profile is healthier after the tightening of its underwriting standards in recent years. Its gross impaired loans (GIL) ratio eased to 3.4% as at end-September 2024 (end-December 2022: 4.2%) while its net newly classified impaired loan ratios were a benign 0.15% and a net writeback of 0.16% (annualised), respectively, in FY Dec 2023 and 9M FY Dec 2024. Stage 2 loans as a proportion of gross loans were also low at 2% as at end-September 2024 (end-December 2022: 6%), while loans under restructuring and rescheduling were minimal as at end-June 2024. As around one-third of corporate loans were deemed secured, GIL coverage stayed moderate at 69% as at end-September 2024. We expect downside risks to asset quality deterioration to be manageable. 

Owing to a higher proportion of low-cost current and savings account deposits (end-December 2023: 38.9%; end-December 2022: 34.2%) and strong business expansion, the Bank’s net interest margin widened to 2.0% in FY Dec 2023 from 1.8% a year ago. Coupled with better trading gains and fee income, BOCM’s bottom line increased to RM211.4 mil (FY Dec 2022: RM159.0 mil), translating into a return on risk-weighted assets (RoRWA) of 1.9% (FY Dec 2022: 1.6%). The three-year average RoRWA of 1.5%, while remaining weaker than peers’ (three-year average RoRWA: 3.2%), is on an improving trend, as seen in the annualised figure of 2.8% for 9M fiscal 2024. 

Solid capitalisation, with a common equity tier-1 capital ratio of 16.4% as at end-September 2024, affords BOCM a sizeable cushion against potential credit deterioration, supporting business growth. Average liquidity coverage and net stable funding ratios were a robust 238.1% and 127.8%, respectively, in 1H FY Dec 2024. Committed liquidity lines are also available from both BOCHK and BOC, if needed. 


Analytical contacts
Sean Lim, CFA
(603) 3385 2550
sean@ram.com.my     

Lee Yee Von
03 3385 2503
yeevon@ram.com.my

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