Malaysian branch still strategic for Bank of China even after potential stake reduction

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KUCHING: There is no immediate rating impact from the potential change in Bank of China (Malaysia) Bhd’s (BOC Malaysia) shareholding following the restructuring of Bank of China Limited’s (BOC or the Group) Asean operations.

According to RAM Ratings Services Bhd, RAM’s approach on BOC Malaysia’s ratings incorporates our expectation of extraordinary parental support from the group.

“We believe that BOC Malaysia will remain crucial to the group’s Asean strategy, even though this corporate exercise, which is pending approval from the relevant regulators, could dilute BOC’s stake in BOC Malaysia from 100 per cent to 66,” it said in a statement yesterday.

Notably, BOC Malaysia is the group’s only renminbi-clearing bank in Asean and forms part of the economic link between China and Malaysia. In addition, the group has made an undertaking to continue supporting BOC Malaysia.

As Asean is an important market to BOC, RAM said the group aims to capitalise on the opportunities arising from the Chinese government’s Belt and Road initiative, the internationalisation of the RMB and the international expansion of Chinese enterprises.

“The proposed transfer of the Group’s Asean operations to Bank of China (Hong Kong) Ltd (BOC HK) is meant to leverage on the latter’s expertise, including its franchise as the largest offshore renminbi-clearing bank.

“The first phase of restructuring involves BOC’s Malaysian and Thai operations; more Asean operations could be moved to BOC HK in future.

“The proposed restructuring follows BOC HK’s recent disposal of its entire stake in Nanyang Commercial Bank, Ltd, which gives it ample capital to acquire the Group’s Asean businesses.

“Besides, this exercise will also allow BOCHK to transform itself into a regional bank with a reach beyond Greater China.”

On June 30, 2016, BOC and BOC HK announced that they have entered into a sales and purchase agreement for the 100 per cent-stake of BOC Malaysia.

Presently wholly owned by the group, BOC Malaysia will be transferred to BOC HK, – a 66 per cent-owned subsidiary of BOC – with the remaining shares publicly held. BOC HK is the second-largest bank in Hong Kong by assets.

It boasts a favourable financial profile, with a gross classified or impaired-loan ratio of only 0.2 per cent and a common-equity tier-1 ratio of 12.8 per cent as at end-December 2015.

“We are currently conducting our annual rating review on BOCM; the exercise is expected to be completed within the next one or two months.”