PETALING JAYA: RHB Bank Bhd says it has sufficient liquidity to manage its cash flows during the automatic moratorium period of six months granted to individuals and SMEs for loan payments.
However, the fourth-largest lender told analysts that it could potentially miss some of its key performance indicators (KPIs) for financial year 2020 (FY20) in view of the rapid deterioration in the operating environment as a result of the Covid-19 outbreak.
The most vulnerable target, according to analysts, would be its KPI for a loan growth of 4% for FY20, which could come in lower because of weak credit demand.
“RHB Bank also stated that its return on equity (ROE) could be below 10% in FY20, relative to its target of 10.3%-10.5%, ” pointed out CGS-CIMB Research in its report yesterday.The research firm said it is projecting an ROE of 9% for RHB Bank for the current financial year and has cut its net profit forecast “by 5%-7% factoring in another 25-basis point (bps) cut in the overnight policy rate and reduce our FY20 projected loan growth from 4% to 0%”.
The bank hosted a conference call with analysts on Monday to provide updates on the developments for its operations and the outlook amidst the Covid-19 outbreak.
During the conference call, RHB Bank stated that its exposure to vulnerable sectors (airline and tourism-related sectors) accounted for 2% of its retail loans and 9% of its non-retail loans. This translates to about 5.4% of its total loans based on analyst estimates. As for the oil and gas loans, its exposure stands at 2.4% of the total gross loans at group level.
“As a stress test, assuming that 10% of these vulnerable loans are classified as impaired and a 30% provision is provided for these impaired loans, RHB Bank’s FY20 net profit would be reduced by 9.5%, based on our estimate, ” said CGS-CIMB.
The group’s liquidity coverage ratio (LCR), which is designed to ensure banking institutions hold sufficient reserve of high-quality liquid assets to allow them to survive a period of significant liquidity stress stood at 152.7% in the fourth quarter of 2019.
According to AmInvestment Bank, under the stress test which the group had conducted, it understands that the LCR was still above 100%.
“The group is likely to lower its LCR but not lower than 100% that is temporary allowed by Bank Negara for banks to operate. The minimum net stable funding ratio (NSFR) for July 1 has been reduced by the central bank to 80% from 100%.
Within this six-month period, the group will actively approach its borrowers to restructure and reschedule their loans. This will prevent loans from falling over to stage three once payment resumes at the end of the moratorium.
The investment bank’s research arm sees the six-month moratorium measure assisting in containing impaired loans from rising substantially over at least for that period.
“During this period, provisions are unlikely to be significantly increased. Nevertheless, we still see some upticks in provisions in FY20 compared to FY19 arising from a rise in general provisioning and potentially higher provisions from corporate loans moving into stage two.“It added that RHB Bank is hopeful for the pandemic to subside soon to maintain a gross impaired loan ratio – the probable outcome that the principal and interest payment won’t be collected – of below 2%. “Should the outbreak prolong, expected credit losses and provisions are likely to surge. As of now, we maintain our credit cost projection of 30bps for FY20, which we had earlier increased by 10bps, ” it added.
The research firm also said that loan and deposit growth was unlikely to be aggressive for FY20. It is maintaining an ROE projection of 8.8% for FY20 as it sees the group’s ROE target of 10.3%-10.5% as challenging, with net interest margin compression from OPR cuts and potentially higher credit costs.
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