RHB Bank Optimistic Of Beating FY18 Record Earnings

In light of the heightened competition for deposits, the lender could see some compression in its NIM this year

By NG MIN SHEN / Pic By HUSSEIN SHAHARUDDIN

RHB Bank Bhd is hoping to beat its highest-ever net profit achieved in the financial year ended Dec 31, 2018 (FY18), this year, despite foreseeing continued competition for deposits and pressure on its net interest margin (NIM).

Group MD Datuk Khairussaleh Ramli said the lender is “working very hard” to surpass its achievements in FY18, in which its net profit rose 18.2% to RM2.31 billion from RM1.95 billion in the previous year.

“We are cautiously optimistic that we can still improve our profit, but there are many parameters we have to work on such as our topline, costs, and provisions.

“We think that we can exceed (what we did) last year, but by how much, we’ll have to wait and see,” he said at a press briefing on the bank’s FY18 results in Kuala Lumpur yesterday.

The group’s earnings last year were a result of an 8.5% increase in net fund-based income to RM4.94 billion on higher gross loans and financing, as well as a 1.8% rise in non-fund-based income to RM1.86 billion on larger net foreign exchange gain, along with trading and investment income.

Allowances for credit losses on loans also fell 22.8% year-on-year (YoY) to RM322.4 million, primarily due to certain recoveries recorded in FY18 and a substantial impairment provided for oil and gas (O&G)-related companies in the previous year.

Allowances for credit losses on other financial assets were significantly lower by RM241.8 million, mainly due to improved ratings of the investment portfolio and the absence of impairment provided on an O&G-related bond in Singapore a year ago.

FY18 revenue improved by 6.9% to RM12.69 billion from RM11.87 billion previously.

For FY18, the lender is keeping a conservative loan growth target of 5%. It also sees the industry registering between 5% and 5.5% in loan growth on the consumer and business segments respectively.

“Given the challenging environment, we think that 5% is good. The key thing is to make sure that we grow responsibly,” Khairussaleh said, adding that growth will continue to come from the bank’s mortgages and small and medium enterprises (SMEs).

Gross loans and financing rose 5.5% YoY to RM168.9 billion in FY18, boosted by the mortgage and SME segments.

Total domestic loans grew 5.6% YoY, while the group’s domestic loan market share stood at 9.1% as at end-December 2018.

Notably, the bank’s Islamic business contributed 34.2% to total group domestic gross loans and financing, up from 29.7% as at end-2017. Gross financing from the Islamic business increased by 21.6% YoY to RM52.3 billion in FY18.

Gross impaired loans (GIL) ratio improved to 2.06% from 2.23% a year ago, with GIL at RM3.48 billion as at end-2018.

Meanwhile, in light of the heightened competition for deposits, the lender could see some compression in its NIM this year. For FY18, NIM was higher at 2.24% versus 2.18% the year before, supported by loan growth and continued prudence in the management of funding cost.

“With the competition and pricing that we see, we think there will continue to be pressure on our NIM — maybe up to a three-basis-point compression for this year compared to what we had last year,” Khairussaleh said.

He said the chase for deposits is “very, very competitive”, particularly for retail deposits, as these will improve banks’ liquidity as required under the net stable funding ratio (NSFR).

NSFR, to be implemented in Malaysia earliest by 2020, is a measure that calls for banks to focus on long-term stable funding.

“There are different levels of deposits from current account and savings account (CASA) to fixed deposits. Everyone is going after the cheapest, which is CASA. Getting deposits is not a major issue. The major challenge is to get cheap deposits,” he added.

As such, the lender is aiming for a more holistic approach in acquiring deposits by using its branches, as well as a soon-to-be-launched mobile banking app that will ease the transaction process for consumers.

While total customer deposits expanded 7.2% YoY to RM178.9 billion in FY18, the group’s total CASA deposits fell 8.1% YoY, lowering CASA composition to 25.9% of total deposits from 30.2% in December 2017.

“CASA declined mainly due to Singapore. Malaysia also saw a small decline. This is coming off a high base in 2017 when our CASA growth stood at 18%, as well as in 2018 because of the competition and other factors that we were not able to maintain,” Khairussaleh said.

On the other hand, capital market activities are expected to improve with several large initial public offerings (IPOs) that would take place amid a low interest-rate environment.

“There have been some reports that some large companies are coming out to the market. We’re also pleased to say that we believe we will be involved in some of these large IPOs as well. It’s a matter of timing, hopefully,” Khairussaleh said.

For the fourth quarter ended Dec 31, 2018 (4Q18), RHB Bank’s net profit rose 22.9% to RM565.43 million from RM460.08 million recorded a year ago, attributed to higher net fund based income and lower allowances for credit losses on loans and other assets.

Revenue was 7.8% stronger at RM3.31 billion in 4Q18 versus RM3.07 billion registered in 4Q17.

The bank has proposed a final dividend of 13 sen per share, bringing the FY18 dividend payout to 35.7%.

It also said future dividend payouts will be at least 30% of the net profit, a revision from between 20% and 30% previously.

Shares of RHB Bank closed unchanged at RM5.59 yesterday, valuing the group at RM22.42 billion. The stock saw 2.47 million shares traded.

Originally published on www.themalaysianreserve.com