RHB Bank sees stabilising O&G portfolio

KUCHING: RHB Bank Bhd’s ( RHB Bank) ratings have been affirmed stable by RAM Ratings at AA2/Stable/P1, in addition to issue ratings of the group’s debt securities.

The reaffirmed ratings reflect RHB Bank’s strong domestic franchise as Malaysia’s fourthlargest banking group, its healthy profit generation capacity, much improved loss absorption buffers – evident from its higher loan loss coverage ratio and robust capitalisation – as well as the group’s sound funding and liquidity profile.

RAM said since 2016 , problematic oil and gas (O& G) credits in Singapore have been the primary cause of high gross impaired loan (GIL) ratios at RHB Bank. A restructuring exercise which entailed a conversion of a bond to a loan in 3Q fiscal 2018 had resulted in a GIL ratio of 2.4 per cent as at end- September 2018.

“The GIL ratio of the Group’s domestic loan book is healthier at 1.7 per cent, albeit still weaker than the industry average of 1.5 per cent as at the same date,” it said in a statement.

“Allowance for loan losses was 19 per centlower year on year (y- o-y) in the first nine months of fiscal year 2018 ( 9M18) as its provisioning requirement eases with the stabilisation of the O& G portfolio.

“The group’s credit cost ratio was healthier at 27 basis points ( bps) in 2017 compared to 2016 and further improved to 20 bps in 9M18. We expect RHB Bank’s asset quality challenges to ease in the near term – sustained improvement on this front could lead to a revision of the outlook to positive.”

This would requi re an observable reduction in the gross impaired loan (GIL) ratios of the Group’s domestic portfolios in line with industry averages, and the maintenance of current loan loss coverage and credit cost ratios, RAM said.

RHB Bank’s annualised net interest margin ( NIM) stood at 2.2 per cent in 9M18 as a result of a 25-bps upward adjustment to the overnight policy rate in January 2018 and good funding cost management.

“However, competition for deposits, especially towards yearend, will likely narrow margins. The group achieved a higher pretax profit of RM2.3 billion in 9M18 on the back of an improved NIM, continued loan growth and lower impairment charges.

“Annual ised return on risk- weighted assets was a commendable 2.5 per cent. RHB Bank also boasts robust capitalisation, with a common equity tier-1 capital ratio of 14.8 per cent as at end- September 2018.”