MARC Ratings has affirmed its AA/MARC-1 ratings on Pac Lease Berhad’s Medium-Term Notes/ Commercial Papers (MTN/CP) Programmes, which have a combined limit of RM1.5 billion. The long-term rating outlook is stable.
The ratings affirmation reflects Pac Lease’s position as a major player in the domestic industrial hire purchase (IHP) segment, with a strong track record as well as good asset quality and profitability. The ratings include a one-notch uplift, assuming potential parental support from Singapore-based Oversea-Chinese Banking Corporation Limited (OCBC or the group), one of the region’s largest banking groups. Pac Lease is a wholly-owned subsidiary of OCBC Capital (Malaysia) Sdn Bhd (OCBC Capital), which is fully owned by OCBC, the ultimate parent, and the group is expected to maintain effective control of Pac Lease throughout the programme. The parental support assumption also considers operational and financial linkages within the group.
Pac Lease’s asset profile remains dominated by loans and advances, reflecting its IHP business. The loan book grew by RM448.0 million (18.2%) in 2024 (2023: RM241.7 million, 10.9%), and by a further 5.8% to RM3.1 billion in 1H2025. As at end-1H2025, the gross impaired loans (GIL) ratio rose to 1.5% (2023: 0.7%) but remained within historical norms and below the banking industry’s GIL ratio of 3.6% for small and medium enterprises. Loan loss coverage on impaired loans declined to 59.7% (2023: 129.4%), driven by lower expected losses on recent impairments, while pre-emptive general provisions have eased post-pandemic.
In 2024, the company’s profit before tax (PBT) decreased slightly to RM90.7 million (2023: RM98.6 million), impacted by a loan impairment allowance of RM6.0 million, compared with a write-back of RM10.9 million in 2023. Net interest margin declined y-o-y to 5.12% due to higher funding costs from an overnight policy rate hike, with recurring net interest income representing over 90% of operating income. Non-interest income was mainly fee and commission income from insurance cross-selling. The cost-to-income ratio remained at 34.2%, as higher operating expenses were offset by income gains. In 1H2025, PBT rose to RM47.1 million, from RM40.7 million in 1H2024.
As a non-bank financial institution, Pac Lease funds its lending through short-term bank borrowings, domestic debt issuances and Cagamas facilities. Short-term funding accounted for 80.7% of total funding as at 1H2025 (2023: 74.2%); refinancing risk is mitigated by diversified committed lines from seven banks, excluding OCBC Malaysia. Pac Lease also has RM1.5 billion in unutilised credit lines, including RM0.8 billion in unutilised bank/Cagamas lines and RM0.7 billion under its MTN/CP programme. As a wholly-owned subsidiary of OCBC, Pac Lease can be expected to receive parental support, if needed.
As at 1H2025, the company’s debt-to-equity (DE) ratio increased to 3.1x (2023: 2.8x), reflecting higher borrowings to support loan growth. Equity has grown with retained earnings, and despite the uptick, the DE ratio remains near the low end of historical pre-2021 levels.