RHB Capital embarks on career transition scheme (Update)

RHB Capital has no definitive target on the number of staff to be released under the CTS.

KUALA LUMPUR: RHB Capital Bhd (RHB Cap) has embarked on a career transition scheme (CTS), which will be voluntarily in nature.

RHB Banking Group said on Thursday there was no definitive target on the number of staff that it will be releasing under the CTS.

“RHB’s primary focus is to strengthen our fundamentals, improve our productivity and optimise our manpower in order to remain relevant, competitive and resilient,” it said.

The fourth-largest lender in Malaysia by assets was responding to a report on StarBiz Online entitled “RHB Capital to launch retrenchment drive”.

StarBiz Online quoted a research note by Maybank Investment Bank Research that RHB Cap was set to be the second financial institution in Malaysia to launch a retrenchment drive this year to rationalise costs.

RHB Capital’s compensation scheme was estimated to be 1.25 times basic salary, according to the report. RHB Cap has total staff strength of 18,000, it said.

“RHB Cap’s move follows in the footsteps of CIMB Group Holdings Bhd, which recently saw the rationalisation of 11.1% of its total workforce via a mutual separation scheme (MSS),” Maybank Research said. 

Using CIMB’s benchmarks, the research house said RHB Cap was expected to incur an MSS cost of about RM332mil, while savings could be about RM219mil per annum from then on. This would theoretically bolster RHB Cap’s earnings for the financial year ending Dec 31, 2016, by about 8%.

To recap, CIMB’s MSS scheme involved a total of 3,599 personnel, of which 1,891 were in Malaysia and 1,708 in Indonesia. The scheme cost RM443mil, but the expected savings from the headcount reduction was RM292mil per annum.

“That RHB Cap needs to rationalise costs is evident in that its cost-to-income ratio (CIR) of 55.5% in the first half of 2015 was high, compared with the industry average of 49%,” Maybank Research explained, pointing to the fact that the group’s management had previously set a near-term CIR target of less than 51%. 

Maybank Research said it would project a higher CIR of 57% for RHB Cap for the financial year ending Dec 31, 2016. 

“So, ceteris paribus, the cost savings from the CTS would take the ratio down to about 53%,” it said.

Maybank Research said it would maintain its “hold” recommendation on RHB Cap, with an unchanged target price of RM7 based on a price-to-book value of one times on its post-rights book value of equity per share. 

“We estimate a 1.3 percentage-point enhancement in the group’s 2016 return on equity to 9.5% post-rights,” it said.