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RAM Ratings revises outlook on RHB Bank’s AA2 rating to positive

Published on 17 Dec 2019.

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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.

Table 1: Ratings of entities under RHB Banking Group

 

Ratings

 

RHB Bank Berhad

 

  1. Financial Institution Ratings

 

  1. RM5 billion Multi-Currency Medium-Term Note Programme (2015/2045)
  • Senior Notes
  • Subordinated Notes

 

  1. RM3 billion Multi-Currency Medium-Term Note Programme (2011/2031)
  • Senior Notes
  • Subordinated Notes

 

  1. RM3 billion Medium-Term Note Programme (2007/2027)
  • Senior Notes
  • Subordinated Notes

 

  1. RM600 million Hybrid Tier-1 Securities Programme (2009/2069)

 

 

 

 

AA2/Positive/P1

 

 

AA2/Positive

AA3/Positive

 

 

AA2/Positive

AA3/Positive

 

 

AA2/Positive

AA3/Positive

 

A1/Positive

 

 

RHB Islamic Bank Berhad

 

  1. Financial Institution Ratings

 

  1. RM5 billion Subordinated Sukuk Murabahah Programme (2014/2034)

 

 

 

 

AA2/Positive/P1

 

AA3/Positive

 

 

RHB Investment Bank Berhad

 

  1. Financial Institution Ratings

 

  1. RM1 billion Multi-Currency Medium-Term Note Programme (2015/2045)
  • Senior Notes
  • Subordinated Notes

 

 

 

 

AA2/Positive/P1

 

 

AA2/Positive

AA3/Positive

 

 

 

Analytical contact
Loh Kit Yoong
(603) 3385 2493
kityoong@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



Rating Rationale: RHB Bank Berhad

Rating Rationale: RHB Investment Bank Berhad

Rating Rationale: RHB Islamic Bank Berhad

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