RHB Bank net interest margin improving

Kenanga Research said the bank's NIM will likely remain softer compared to FY22.

PETALING JAYA: RHB Bank Bhd’s net interest margin (NIM) has reverted positively in the third quarter of financial year 2023 (3Q23), an indication that downside pressure is subsiding, says Kenanga Research.

However, near-term challenges may drag certain metrics, which have led to lower financial year 2023 (FY23) guidance by the group.

“Owing to some challenges, the group opted to revise most of its headline targets downwards, with the exception of loan growth, which it believes could do better than expected,” said Kenanga Research in a report after a briefing with the group’s management.

On loan growth, the research firm said expectations have inched up slightly to between 5% and 5.5%, from between 4% and 5%.

“Aside from mortgages (for RM500,000 to RM700,000 homes), the group is seeing strong acquisitions from its Singapore books, fuelled by corporate accounts in the real estate segment, which may continue to support until the end of the year.”

It noted that NIM pressures have elevated despite previous warnings of continued compression, as the group managed to contain further increases to funding costs.

However, Kenanga Research added that it will likely remain softer when compared to FY22, with the lack of aggressive interest rate upcycle.

Among other highlights from the briefing, it said the group has loan loss coverage of 75%, without utilising regulatory reserves.

Despite this, the bank does not appear to be in a hurry to shore up further provisions.

This is because asset quality concerns are not as significant, with risks leaning towards unsecured small and medium enterprise (SME) accounts, which may only be 20% of the segment portfolio.

“In lieu of the above mentioned, deterioration has already been seen with gross impaired loan guidances now higher at 1.7% to 1.8% (from below 1.5%).

“On the flipside, business is as usual with credit cost expected to land at 20 to 25 basis points, which may not reflect a heavy 4Q23 provisioning.

“Meanwhile, the group maintained its management overlays of RM538mil,” added Kenanga Research.

In 3Q23, RHB Bank posted a net profit of RM649.95mil, down from RM695.41mil in the same quarter in 2022.

This brought nine-month FY23 net profit to RM2.22bil, which Kenanga Research said was above its full-year forecast, making up 81% of that amount.

The deviation was owing to lower-than-expected NIM performance following concerns of continued funding cost strain to the group.

“Notably, 3Q23 recorded impairments of RM166.1mil as opposed to 2Q23 net writeback of RM102.2mil.

“This gap in provisions led to 3Q23 net profit of RM649.9mil to be 20% softer,” added the research firm, which maintains an “outperform” call on the stock with a RM7.15 target price.

Meanwhile, CGS-CIMB Research is projecting a net profit of RM712.8mil for RHB Bank in 4Q23, representing quarter-on-quarter (q-o-q) growth of 9.7%.

This, it said, could be underpinned by the continuous q-o-q expansion in NIM and expectation of a q-o-q drop in loan loss provision.

It said the bank guided that loan growth would remain robust in 4Q23 compared with the lethargic trends in the first half of 2023.

“We reaffirm our ‘add’ call on RHB Bank, given its 2023 forecast dividend yield of 6.1% (the highest in the sector) and attractive 2024 price-to-earnings of 7.5 times versus the sector’s average of 9.7 times.”

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