Published on 17 Dec 2019.
RAM Ratings has revised the outlook on RHB Bank Berhad’s (the Group) AA2 long-term financial institution rating to positive from stable while reaffirming its ratings, premised on asset quality improvements demonstrated by the Group amid the current economic downcycle, most notably in its domestic book. RHB Bank’s key domestic retail segments are expected to remain resilient, anchoring its overall portfolio health. While the oil and gas portfolio still weighs on asset quality, risks stemming from it have abated and the above-100% provision coverage mitigates provisioning risk. Looking ahead, RHB Bank’s healthier loan loss coverage, strong pre-provision earnings and robust capitalisation serve as a solid buffer against potential impairments that may arise from chunkier corporate and foreign exposures.
RHB Bank is the fourth-largest banking group in Malaysia in terms of total assets, holding a respective 8% and 9% share of the banking system’s deposits and loans as at end-September 2019. The Group has a strong domestic franchise – since embarking on a portfolio rebalancing strategy in 2015, RHB Bank registered market share gains in the residential property (9.7%) and SME financing (9.4%) segments (end-December 2016: 8.5% and 8.8%). It currently ranks third by gross financing in the domestic Islamic banking space and has consistently placed among the top five in the investment banking and stockbroking arenas. The positive outlook is similarly reflected in the ratings of the Group’s debt instruments as well as that of its core subsidiaries, RHB Islamic Bank Berhad and RHB Investment Bank Berhad (Table 1 below).
Amidst its focus on growing more granular retail and SME loans as well as the tightening of underwriting standards for consumer portfolios, the asset quality of RHB Bank’s domestic book has charted improvements, with gross impaired loan (GIL) ratios averaging a lower 1.6% in the 2018-2019 period (2016-2017: 2.0%). While the ratio had ticked up in recent quarters – partly due to the Group’s restructuring efforts – we understand that impairments were borrower-specific.
With a robust common equity tier-1 capital ratio of 16.5% as at end-September 2019 (end-December 2018: 15.5%), RHB Bank stands among the best-capitalised domestic banking groups in the country. This, together with strong pre-provision earnings growth, amply cushions potential credit losses. The Group’s pre-tax profit came in at RM2.5 bil in 9M fiscal 2019 (9M fiscal 2018: RM2.3 bil) as impairment charges continued to recede from heights recorded in fiscal 2016 and 2017. This translated into a sound pre-tax return on risk-weighted assets of 2.8% on an annualised basis, although partially boosted by the continued optimisation of risk-weighted assets.
RHB Bank Berhad
RHB Islamic Bank Berhad
RHB Investment Bank Berhad
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2577
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