Sunday, September 19

RHB’s strong capital reserves remain intact in current landscape

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KUCHING: Despite the impact of the Covid-19 pandemic and the reinforcement of movement controls, analysts observed that RHB Bank Bhd’s (RHB) strong capital reserves remain intact.

Following a meeting with RHB, the research team at Kenanga Investment Bank Bhd (Kenanga Research) in a report, said: “Overall, the group is expected to remain unfazed by the reinforcement of movement controls and confident of maintaining its FY21 targets.

“Economic recovery opportunities are anticipated on better subsequent quarters but further clarity on its Dividend Reinvestment Plan (DRP) is pending approvals. We believe the group’s merit for strong capital reserves remains intact in the current landscape.”

According to its management, RHB has fairly weathered through the MCO 2.0 in January to February 2021 as the movement restrictions were not as restrictive as compared to FY20.

“That said, loan applications did see some set-backs but is not detrimental to the group’s loans growth target of four to five per cent (compared with our FY21E target of 6.2 per cent) on hopes of better economic activity in the coming quarters, propelled by expectations of higher mortgages, auto financing, SMEs and Singapore’s contributions (which is striving in the non-retail space).

“That said, the bank’s Targeted Repayment Assistance (TRA) experienced further applications to RM26 billion (16 per cent of domestic loans, from RM24.4 billion or 15 per cent as of February 8, 2021).

“This mainly comes from business and wholesale banking, which provides comfort to us as it shows that the group’s retail strength is still persisting, in addition to at least 70 per cent of its TRA being partially or wholly secured,” Kenanga Research said.

Asked if 4QFY20’s unwinding of mod losses of RM170 million could persist into the coming quarters, RHB’s management highlighted that the process would be progressive based on the affected loans’ tenure and can be up to eight years.

As of FY20, Kenanga Research noted that the group registered a net mod loss of RM248 million.

Aside from that, with the overnight policy rate (OPR) expected to remain stable and most of its loans being repriced, RHB’s management expects its FY21 net interest margin (NIM) of 2.06 per cent to be held by its high current account, savings account (CASA) mix of 30 per cent and pricing opportunities in the fixed deposit segment.

“On the other hand, its non-interest income (NOII) is expected to stay buoyant, albeit likely to be moderate compared to 2HFY20’s performance.

“Management expressed that there is still encouraging interest in wealth management products while brokerages are still strong, but the lion’s share of fees from commercial banking (22 per cent of total NOII) will be pegged to the success of its loans,” the research team said.

All in, Kenanga Research maintained its ‘outperform’ call on the stock.

It said: “Going forward, we expect other banks to also come forth with higher levels of targeted assistance and those seeking safety could keep an eye on RHB for it.”