[RAM] RAM Ratings affirms AA1 ratings of RHB Bank and core subsidiaries RHB Islamic and RHB Investment

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%).





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