Moody's Affirms Aa1 Deposits and Senior Unsecured Debt Ratings of OCBC and UOB

Strategic Insights -

Singapore's Oversea-Chinese Banking Corp Ltd (OCBC) and United Overseas Bank Limited (UOB) have maintained their Aa1 deposits and senior unsecured debt ratings, according to Moody's Investors Service. The ratings affirmation comes despite the challenging operating environment due to the coronavirus pandemic and economic volatility. Moody's expects both banks to weather the difficulties with solid capital and superior funding and liquidity.

Key Takeaways:

  • Moody's has affirmed the Aa1 deposits and senior unsecured debt ratings of OCBC and UOB due to their strong credit profiles, which will remain very strong despite the challenging environment.
  • The banks' solid capital and superior funding and liquidity will act as a defense against elevated credit provisions and asset quality challenges.
  • Moody's continues to incorporate a high likelihood of support from the Government of Singapore for the banks in times of need, leading to a three-notch uplift to their deposits and senior unsecured debt ratings.
  • The banks' problem loans ratios are expected to increase in 2021, but the problem loans coverage ratios will remain high.
  • The banks' return on assets will decrease this year due to increased provisions but will gradually improve to remain close to 1% in the future.
  • Capital levels will remain strong at both banks in 2020-2021, with their tangible common equity-to-risk-weighted assets (RWA) ratio expected to remain above 14%.
  • Funding and liquidity will also remain strong at both banks.

Statistics:

  • Moody's expects OCBC's problem loans ratio to increase to 2.1% and UOB's to 2.2% in 2021, from 1.6% and 1.5%, respectively, at September 2020.
  • The banks have maintained high problem loans coverage ratios of around 105% and 110%, respectively, as of the same date.
  • OCBC's loans under relief made up 5% of its gross loans as of the end of October 2020, while UOB's were somewhat higher at 10%.
  • The banks' return on assets (ROA) will decrease in 2021 but will gradually improve to remain close to 1% in the future.

Sources:

  • Moody's Investors Service, "Affirmation of OCBC and UOB Debt and Deposit Ratings" (Moody's Ref.: 2021-02-202)
  • Moody's Investors Service, "Banks Methodology" (Moody's Ref.: 2019-11)
  • Regulatory disclosures by Moody's on credit rating actions, including information on methodology assumptions, sensitivity to assumptions, and regulatory requirements.
  • Moody's Rating Symbols and Definitions, available at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.