Published on 11 Oct 2023.
RAM Ratings has affirmed the AA1/Stable/P1 financial institution ratings of RHB Bank Berhad (the Group), RHB Islamic Bank Berhad and RHB Investment Bank Berhad. The ratings of the entities’ debt facilities have likewise been affirmed (Table 1).
Our rating action considers the Group’s strong domestic banking franchise and sound credit metrics. Contributing close to 10% of the Malaysian banking system’s deposits and loans as at end-June 2023, RHB Bank is the fourth-largest banking group in Malaysia, with commendable market shares in the residential property financing and small and medium enterprise (SME) financing segments. Its investment banking and Islamic financing units are similarly positioned among the leaders in their respective arenas.
The Group has among the highest capital indicators in the local banking industry, its post-dividend common equity tier-1 capital ratio consistently above 15% in the last few years (end-June 2023: 16.7%). Robust capitalisation in addition to still-healthy loan loss reserves and pre-provision profit generation form strong loss absorption buffers against potential credit deterioration should downside risks linger on the asset quality front.
Still one of its key rating strengths, the Group’s asset quality is supported by sound risk management practices and a portfolio rebalancing strategy (in favour of household and SME loans) that has been in place since 2015. Although slightly weaker due to some corporate impairments and the residential property financing segment, RHB Bank’s asset quality continued to fare better than the industry’s, with its headline gross impaired loan ratio standing at 1.6% as at end-June 2023 (industry: 1.8%; end-December 2021: 1.5%). All the Group’s domestic retail segments outperformed the industry. We expect credit pressures to persist in the retail segments in view of higher interest rates and inflationary pressures, but slippages are likely to be manageable for RHB Bank.
Reduced provisioning needs and reversals of the Group’s management overlays led to an improved credit cost ratio of 15 bps in 2022 (2021: 30 bps) and a net writeback position in 1H 2023. This together with stronger treasury-related income and still-healthy loan growth helped the Group clock a higher pre-tax profit of RM2.1 bil in 1H FY Dec 2023 (+10% y-o-y; 1H FY Dec 2022: RM1.9 bil). This was in spite of a compressed net interest margin amid intense deposit competition in the earlier part of the year which affected most, if not all, local banks.
The Group’s funding and liquidity profile stayed sound, comfortably meeting minimum regulatory requirements. The financial institution ratings of the Group’s core subsidiaries, RHB Islamic and RHB Investment, are equated to RHB Bank’s, given their strategic importance to the Group.
Table 1: Ratings of entities under RHB Banking Group
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2619
(603) 3385 2500
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Rating Rationale: RHB Bank Berhad
Rating Rationale: RHB Islamic Bank Berhad
Rating Rationale: RHB Investment Bank Berhad
Ratings on RHB Bank Berhad