RAM Ratings has reaffirmed the AA2/Stable rating of ORIX Leasing Malaysia Berhad's (OLM or the Group) RM500 mil Medium Term Notes (MTN) Programme (2016/2031). The AA2/Stable rating of ORIX Credit Malaysia Sdn Bhd's (OCM) RM1.5 bil MTN Programme (2021/2051) and P1 rating of its RM500 mil Commercial Papers Programme (2020/2027) have also been reaffirmed. A wholly owned subsidiary of OLM and highly integrated with the Group, OCM contributed just under 70% of the Group's pre-tax profit in FY Mar 2021. As such, the credit profiles of OLM and OCM are closely aligned.

The reaffirmation of the ratings reflects our expectation of continued ready support from ORIX Corporation (ORIX Corp)  the ultimate parent of the two entities  in view of the Group's strategic importance to ORIX Corp. Apart from guaranteeing almost all the Group's bank borrowings and providing credit lines, ORIX Corp exercises strong oversight of the Group's operations.

The ratings also give credit to OLM's established franchise in the domestic hire purchase (HP) and leasing industry. The Group is a leading player in the domestic industrial HP and leasing sphere. With almost five decades of experience in this space, the Group's in-depth insight into and knowledge of the Malaysian HP and leasing market gives it an edge, as does its good relationships with suppliers and clients.

OLM's asset quality has weakened amid the challenging operating landscape, its gross impaired financing (GIF) ratio rising to 5.8% as at end-September 2021 (end-March 2020: 1.5%; end-September 2020: 4.6%). This was partly due to a shrinking financing base, OLM's selective stance in extending relief measures to HP customers and constraints in restructuring and rescheduling term loans extended under the Group's money lending licence. A portion of its GIF also relates to receivables under its HP and leasing portfolio for which relief has been approved but execution is pending. Excluding term loans classified as impaired but gra