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RHB credit charge-off rate to come in lower

Bank aims to grow deposits in SME segment


“RHB Bank remains an ‘add’ and our top pick for the sector as its 2022 forecast dividend yield of 5.4% is one of the highest in the sector.”

CGS-CIMB Research

PETALING JAYA: The credit charge-off rate for RHB Bank Bhd in the financial year 2022 (FY22) could come in lower at between 20 and 30 basis points (bps), below its original guidance of 30 to 40 bps.

This was revealed by RHB Bank’s group chief financial officer Nik Rizal Kamil Nik Ibrahim Kamil during CGS-CIMB Research’s regional virtual conference held on Nov 9.

A credit charge-off rate (CCOR) is a measure that shows the percentage of defaulted credit balances in comparison to the total amount of credit outstandin­g.

CGS-CIMB Research said it is relatively more positive on RHB Bank following the event, given its lower CCOR guidance.

“We are projecting a CCOR of 32 bps for RHB Bank in FY22. We estimate that every one-basis-point reduction in CCOR from our projection will enhance our FY22 forecast net profit for RHB Bank by circa 0.5%,” the research firm noted.

It notes that under the banking group’s new three-year strategy called “Together We Progress 24” (TWP24), the bank aims to lift its return on equity (ROE) from 10.2% in FY21 to 11.5% in FY24, which is higher than CGSCIMB Research’s projected ROE of 10.6% for FY24.

“Potential levers for an increase in ROE are an improvemen­t in credit costs, continuous expansion in assets (leading to an increase in net interest income), and better operating efficiency,” CGS-CIMB Research added.

Another key takeaway from the session was that the bank sees a pick-up in deposit competitio­n in the banking industry.

To this end, the bank will “take a conservati­ve stance against it, to defend its net interest margin and maximise the positive impact from the hikes in the overnight policy rate (OPR).”

RHB Bank is also keen to grow its deposits in the small and medium enterprise­s (SMES) segment, in the form of operating accounts for SMES – the primary accounts through which the SMES carry out all their banking transactio­ns – as well as the salary accounts of their employees.

“We think that these types of deposits are stickier compared to most other types of deposits.” said CGS-CIMB Research.

While RHB Bank sees negligible earnings contributi­ons from its digital banking joint venture in the next few years, the bank said it will be able to benefit from this venture in terms of new technology and technical knowhow to run a pure digital bank.

Furthermor­e, RHB Bank will be able to tap into the customer ecosystem of Boost, the fintech arm of Axiata Group Bhd.

The Boost-rhb Bank consortium secured a digital banking licence from Bank Negara last year.

With regards to the start-up of the new digital bank, RHB Bank said that it is now in the “build” stage (the planning stage), where it is formulatin­g its technologi­cal blueprint and strategic plans.

The consortium plans to launch the new digital bank towards the end of 2023, according to CGS-CIMB Research.

“RHB Bank remains an ‘add’ and our top pick for the sector as its 2022 forecast dividend yield of 5.4% is one of the highest in the sector, while the stock is trading at an attractive 2023 price-to-earnings ratio of 6.7 times (versus the sector’s average of 10.2 times).

“Potential re-rating catalysts are wider expansions in net interest margins amid the OPR upcycle relative to its peers and improvemen­ts in loan loss provisioni­ng,” added CSGCIMB Research.

However, the research firm is marginally cutting its FY22 to FY24 earnings per share forecasts by between 0.4% and 0.8%.

This is on the assumption of an increase in the group’s share base to 4.25 billion shares to factor in the 35.3 million new shares issued under its dividend reinvestme­nt plan.

CSG-CIMB Research raised the stock target price from RM7.46 to RM7.62.

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