Published on 17 Dec 2021.
RAM Ratings has revised the outlook on RHB Bank Berhad (the Group) and its banking subsidiaries to positive from stable, while maintaining the AA2 long-term financial institution ratings of the entities.
The positive outlook reflects the sustained track record of improvement in RHB Bank’s credit fundamentals over the years and the higher degree of economic certainty. The outlook on the Group’s ratings was previously raised to positive in 2019 but reverted to stable the following year owing to pandemic-induced economic challenges. RHB Bank’s robust loan loss absorption buffers in the form of capital, loan loss reserve and pre-provision earnings are viewed to be credit positive factors that will anchor its resilience against lingering uncertainties in the operational environment. The outlook revision also considers the Group’s disciplined execution of business strategies, which have yielded tangible results.
Asset quality indicators have charted firm improvements in recent years on the back of tighter underwriting standards and risk controls coupled with a notable tapering of lumpy corporate exposures. The Group’s headline gross impaired loan ratio stood at an all-time low of 1.3% as at end-September 2021, although in part helped by existing loan forbearance programmes in its key markets.
As at mid-November 2021, around 31% of RHB Bank’s domestic book benefited from relief measures, largely in line with the industry’s experience. The flexible eligibility criteria of the recent government-led, opt-in repayment moratorium explains the sizeable volume of domestic loans under forbearance. We take comfort that approximately 90% of assisted loans had no overdue amounts at point of application, and slightly more than half of retail loans under relief were held by borrowers in the top 20 (T20) income group.
Like other banks, RHB Bank continued to beef up loss absorption buffers. Its credit cost remained elevated in 9M FY Dec 2021 compared to pre-pandemic levels, at an annualised 46 bps (FY Dec 2020: 59 bps; FY Dec 2019: 18 bps) – around 87% of the charges incurred were management overlays. As a result, loan loss coverage (including regulatory reserves) was a solid 150% as at end-September 2021 (end-December 2020: 121%; end-December 2019: 110%). RHB Bank’s robust capital position is another key rating strength. Its post-dividend common equity tier-1 capital ratio was 16.8% as at the same date, having been consistently kept above 15.0% since end-2018.
With a three-year (2018-2020) average return on risk weighted assets (RoRWA) of 2.5%, we view RHB Bank’s profitability to be strong. The Group has demonstrated an ability to generate healthy earnings through economic cycles, backed by diversified income sources and disciplined cost management. Pre-tax profit rebounded by 26% y-o-y to RM2.6 bil in 9M FY Dec 2021 (annualised RoRWA: 2.6%), largely aided by a smaller modification loss, markedly broader net interest margins and less hefty impairment charges. Despite further provisioning expenses and additional modification losses arising from ongoing repayment assistance, the Group is poised to report a stronger bottom line this year.
The financial institution ratings of the Group’s core subsidiaries, RHB Islamic Bank Berhad and RHB Investment Bank Berhad, are equated to RHB Bank’s, considering their strategic importance to the latter.
RHB Bank Berhad
RHB Islamic Bank Berhad
RHB Investment Bank Berhad
Tan Shu Xuan
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