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RAM Ratings affirms AA1 ratings of RHB Bank and core subsidiaries RHB Islamic and RHB Investment
Published on 28 Nov 2024.
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 also been affirmed (Table 1).
The rating actions reflect the Group’s strong banking franchise in Malaysia and sound credit metrics, which have stayed intact since our last review. Contributing a respective 8% and 9% of the banking system’s deposits and loans as at end-June 2024, RHB Bank is the fourth-largest banking group in the country, with commendable market shares in residential property financing (10%) and small and medium enterprise (SME) financing (9%). RHB Islamic and RHB Investment are also prominent players in their respective segments. As RHB Bank’s core subsidiaries, the financial institution ratings of the two entities are equated to the Group’s, premised on our expectation of extraordinary parental support if needed.
Despite some slippages, RHB Bank’s asset quality is still sturdy with an overall gross impaired loan (GIL) ratio of 1.8% as at end-June 2024 (end-December 2022: 1.6%). The deterioration mainly stemmed from the non-retail book (including overseas exposure and SMEs) and domestic mortgages. That said, the credit quality of the Group’s domestic portfolio still outperformed the banking industry with a GIL ratio of 1.56% on the same date (industry: 1.59%), with all domestic retail segments faring better than the industry on this front. RHB Bank’s credit cost ratio clocked in at 16 bps last year (2022: 15 bps) and subsequently higher at 32 bps in 1H 2024, the latter reflecting a normalised level given the moderating effects of overlay reversals in 2023.
As a result of the loftier credit costs and operating expenses, to a smaller degree, pre-tax profit (ex. non-recurring items) was a lower RM1.9 bil in 1H FY Dec 2024 (-11% y-o-y; 1H FY Dec 2023: RM2.1 bil) notwithstanding topline improvement on the back of mild recovery in the Group’s net interest margin (amid reduced funding cost pressure) and stronger treasury-related income. The pre-tax return on risk-weighted assets averaged 2.8% in the last three years, a healthy level in our view.
RHB Bank’s capitalisation and funding and liquidity profile are still its rating strengths. With a post-dividend common equity tier-1 capital ratio of 16.5% as at end-June 2024 (end-December 2022: 16.9%), it remains one of the most well-capitalised banks domestically. The Group’s funding and liquidity profile stayed sound, with current and savings account and retail deposits constituting a respective 28% and 43% of total deposits as at end-June 2024 (end-December 2022: 29% and 35%).
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
© Copyright 2024 by RAM Rating Services Berhad
Rating Rationale: RHB Bank Berhad
Rating Rationale: RHB Investment Bank Berhad
