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RAM Ratings assigns ratings to RHB Bank’s proposed RM10 billion Multi-Currency Note Programme
Published on 30 Sep 2024.
RAM Ratings has assigned respective AA1 and AA2 ratings to the senior and tier-2 subordinated notes to be issued under RHB Bank Berhad’s (the Group) proposed RM10 billion Multi-Currency Note Programme and an A1 rating to the additional tier-1 (AT-1) capital notes under the programme. The Group’s AA1/Stable/P1 financial institution ratings (FIRs) continue to reflect its strong domestic banking franchise and healthy credit metrics.
The one-notch difference between the long-term AA1 FIR and the rating of the tier-2 subordinated notes reflects the subordination of the instrument to the Group’s senior unsecured obligations. The rating of the AT-1 capital notes is notched down three times from the long-term FIR in view of their subordinated nature, fully discretionary distribution payments and our assessment that RHB Bank possesses a ‘high’ capital buffer against the numerical trigger for loss absorption, as defined in RAM’s rating methodology for bank securities.
Although the Group’s domestic book continued to slightly outperform the banking industry with a gross impaired loan (GIL) ratio of 1.56% as at end-June 2024 (industry: 1.60%), its headline GIL indicator weakened to 1.76% as at the same date (end-December 2022: 1.55%). The deterioration largely stemmed from the Group’s overseas exposure, in particular non-retail loans, while domestic mortgages and small-medium enterprises were smaller contributors. That said, all domestic retail segments continued to fare better than the industry. RHB Bank’s credit cost ratios came in at a respective 16 bps and 32 bps in FY Dec 2023 and 1H FY Dec 2024 (FY Dec 2022: 15 bps). The figure for fiscal 2023 would have been higher if not for the writeback of overlays during the year.
Like its peers, RHB Bank’s net interest margin (NIM) was narrower in fiscal 2023 owing to fierce deposit competition that had spilled over from end-2022. The compression would have been more severe in the absence of a forex swap initiative that took some pressure off margins (NIM after accounting for swap arrangement: 1.9%; reported NIM: 1.8%). Funding cost pressures eased in 1H fiscal 2024, leading to a mild recovery in NIM. While pre-tax profit slid in both periods (fiscal 2023: -9.2% y-o-y to RM3.8 bil; 1H fiscal 2024: -10.5% to RM1.9 bil excluding non-recurring items), the pre-tax return on risk-weighted assets remained strong at 2.6% on average.
The Group’s funding and liquidity profile is still sound, with current and savings account and retail deposits constituting a respective 28% and 43% of total customer deposits as at end-June 2024 (end-December 2022: 29% and 35%). RHB Bank remains among the best-capitalised banks domestically, with a common equity tier-1 capital ratio of 16.5% as at end-June 2024 (industry: 14.3%; end-December 2022: 16.9%).
Analytical contacts
Loh Kit Yoong
(603) 3385 2493
kityoong@ram.com.my
Sophia Lee
(603) 3385 2619
sophia@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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
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