RAM Ratings reaffirms RHB Bank’s AA2/Stable/P1 ratings

CIMB Research's top pick is RHB Bank

KUALA LUMPUR: RAM Ratings has reaffirmed RHB Bank Bhd’s AA2/Stable/P1 financial institution ratings, as well as the issue ratings of the bank’s securities.

In a statement Wednesday, RAM Ratings said the reaffirmed ratings reflected RHB Bank’s strong domestic franchise as Malaysia’s fourth-largest banking group.

“The rating action also considers RHB Bank’s stronger capitalisation, which provides a healthy buffer against the recent weakening in its asset quality that has affected its earnings,” it said.

RAM Ratings said although the bank’s asset quality had been improving, this trend had reversed of late.

It said the bank’s gross impaired-loan (GIL) ratio had deteriorated to 2.1% as at end-June 2016 (end-December 2015: 1.9%), following the restructuring of several large corporate loans.

Amid persistently feeble oil prices, further weakness in the bank’s asset quality is likely to stem from its exposure to the oil and gas (O&G) sector, which amounts to about 3% of its gross loans. RHB Bank’s credit-cost ratio is expected to rise in fiscal 2016 (fiscal 2015: 0.2%).

“Given the expected rise in credit costs and impairment charges, the bank’s profitability is expected to remain subdued this year.

“RHB Bank’s pre-tax profit in 1H FY Dec 2016 declined 13% y-o-y, primarily due to impairment losses on an O&G-related bond exposure. More costly funding had also exerted pressure on its net interest margin, which has been trending downwards,” it said.

RAM Ratings said RHB Bank’s credit metrics were supported by its healthy capitalisation levels. A RM2.5bil capital injection formed part of a corporate restructuring exercise that had led to the bank becoming the apex holding company of the RHB banking group.

This, it said had in turn lifted the bank’s common-equity tier-1 capital ratio to 13.1% as at end-June 2016 (end-December 2015: 11.6%, before the corporate restructuring).