PETALING JAYA: RHB Bank Bhd, which chalked up a healthy year-on-year (y-o-y) performance in the first quarter ended March 31, 2023 (1Q23), is likely to see its net interest margin (NIM) slippage moderate in the next two quarters.
This is given that a large proportion of its fixed deposit (FD) would have been repriced, said Hong Leong Investment Bank (HLIB) Research.
The research house also expects a more rational FD rivalry among banks, while the recent May overnight policy rate hike could help to blunt contraction.
However, HLIB Research sees loan growth tapering further due to the softer macro economic environment.
“Besides, gross impaired loan ratio is likely to climb but we are not particularly worried since RHB’s loans loss coverage is over 100%.
“This provides a robust buffer to cushion any asset quality weakness in the short term that may potentially stem from macro headwinds and tighter monetary policy,” the research firm said in a report.
It said the bank’s 1Q23 net profit of RM761.67mil were within estimates and thus, it was keeping FY23-FY24 forecasts unchanged.
This was higher by about one-third from the same period a year ago, although slightly lower from 4Q22.
HLIB Research said it continues to like RHB for its high common equity tier-1 ratio, indicating headroom for attractive dividend payout in the future, and its undemanding valuations.
It maintains a “buy” call on the stock with a RM6.60 target price, based on 0.91 times FY23 price-to-book.
This was above the research firm’s five-year mean of 0.80 times, but in line with the sector’s 0.84 times.
“In our view, the valuation multiple is fair, since its return on equity output is comparable to sector average,” said HLIB Research.
On the back of expectations that the banking system loan growth will remain subdued for the remainder of the year, TA Research said it was toning down its loan growth assumption to 4.5%, 5% and 5.5% from 5%, 6% and 7% in FY23, FY24 and FY25, respectively.
“While the group managed to chalk up a healthy y-o-y performance, management remains cautious that the macroeconomic headwind persists and as such, maintains a prudent stance while staying on course in executing its TWP24 strategy,” it added.
TA Research noted that for now, management is keeping its FY23 targets where loans are seen to grow by around 4% to 5% in areas like mortgage, auto finance, small and medium enterprises, as well as from Singapore.
Credit costs, meanwhile, are expected to soften to around 25-30 basis points, while higher non-fund-based income is seen on a y-o-y basis.
However, the downside risks include NIM being impacted by rising deposit competition and growing overhead expenses as the group continues to invest in information technology and digital to drive efficiencies, TA Research said.
“In the medium term, we foresee the TWP24 strategy potentially creating new revenue streams and increasing fee income from a more holistic wealth management proposition, expanding the insurance business, developing a more integrated Islamic ecosystem, strengthening overseas operations, and accelerating sustainable financial services.
