KUALA LUMPUR: RAM Rating Services Bhd views United Overseas Bank (Malaysia) Bhd's acquisition of Citibank Bhd's consumer banking business as a credit positive.
In a statement today, the credit rating agency said the segment's acquisition that has a net asset value of approximately RM4.5 billion along with over 1,000 Citibank employees is expected to strengthen UOB Malaysia's retail banking business and leapfrog its credit cards market position by loans from sixth to second.
Apart from Malaysia, subsidiaries of United Overseas Bank Ltd in Indonesia, Thailand and Vietnam also entered into agreements to acquire Citigroup Inc's consumer banking businesses in the respective countries.
The aggregated acquisition cost of US$3.6 billion (RM15.1 billion) was 1.2 times the net assets.
RAM Ratings said with total assets amounting to RM129.6 billion as of end-September 2021, UOB Malaysia is among the largest locally incorporated foreign banks.
Post-acquisition, the bank's existing loan base is expected to grow about 15 per cent while its retail customer base will increase by roughly 70 per cent to 1.5 million.
About 40 per cent of the assets to be acquired are unsecured and mainly comprise Citibank's sizeable credit card operations, which complement UOB Malaysia's secured portfolio.
"The retail banking businesses of both banks target mainly top tier and affluent mass customers, which generally have better credit profiles.
"While Citibank's unsecured portfolio entails higher risk, we anticipate the impact on UOB Malaysia's overall asset quality to be manageable.
"On a risk-weighted basis, the higher yield of this portfolio could improve the bank's returns," it said.
RAM Ratings expects the acquisition to reduce UOB Malaysia's common equity tier-1 capital ratio by about 300 basis points to a still sound 14 per cent (pro forma basis).
"Subject to regulatory approval, the bank expects the integration to be completed in mid-2023.
"RAM will continue to monitor developments in this regard," it added.
UOB Malaysia was rated AAA/Stable/P1 by RAM.
Separately, RAM reaffirmed Citibank's AAA/Stable/P1 financial institution ratings in December 2021, premised on the expectation that the bank will continue to derive extraordinary support from its parent, Citigroup Inc.