Challenging environment persists for RHB Bank
KUCHING: The team at AmInvestment Bank Bhd (AmInvestment Bank) continue to see challenges for RHB Bank Bhd (RHB) in terms of fee income for invesment banking as well as investment and trading income.
This comes as deposit competition remains intense as Malaysian banks are complying with the Net Stable Funding Ratio (NSFR) despite no formal deadline has been set for its implementation.
“Management guided for the FY19 net interest margins (NIM) to be compressed by three to five basis points (bps) from 4QFY18 to around 2.17 per cent,” AmInvestment Bank said in a note yesterday, saying this is due to the compression in asset yields and higher funding cost.
“Rates for mortgage and SME loans remain competitive. Potentially, the group could increase its base rate (BR) just like other banks namely, Hong Leong Bank, CIMB and BIMB to alleviate the pressure on cost of funds.”
To note, Hong Leong Bank raised its BR by 10bps in Jan 2019 while CIMB and BIMB increased their rates by 10bps and 13bps in December and November 2018 respectively.
“We expect any increase in RHB’s BR to potentially lead to a lower NIM compression than the guidance given by management,” it added.
On loans, AmInvestment Bank saw that RHB’s pipeline for mortgage loans is still strong, having achieved double- digit growth for mortgages in FY18.
As for corporate loans, the group is expecting positive growth in FY19 from a contraction in FY18.
The existing pipeline and a modest growth in corporate financing are anticipated to offset some scheduled repayments in FY19.
Notably, loans to real estate developers make up 5.2 per cent of its total loans.
On a comforting note, AmInvestment Bank saw that RHB’s margin of advance is low at 60 to 70 per cent, and loans to real estate developers are well secured. Meanwhile, Islamic banking is still strong, and the group is targeting a growth in the mid-teens in FY19.
“We understand that for oil & gas loans, provisions have already been mostly provided for. Meanwhile, gross impaired loans (GIL) ratio for real estate loans stood at 3.3 per cent, and the group remains cautious on the sector.”
To attain gradual improvements in operating expenses, the group has committed to spending at least RM200 million in digital investments over five years from 2018 to 2022.
In 2018, the group has already incur red and committed expenditures of RM100 million which is close to the RM200 million minimum spend target. Works are ongoing to revamp the loan origination system (phase 1) and a digital app for mobile banking.
“Thereafter, the group will look into improving its internet banking offerings either in 2019 or 2020.”