RHB’s new growth strategy

With digital transformation continuing to shape the banking landscape here and globally, the RHB Banking Group has earmarked up to RM1bil over the next three years for information technology (IT) and digital transformation capital expenditure (capex).

More than that, the lender, fresh from turning in a strong financial performance for its most recently concluded fiscal year, also plans to employ a multi-pronged strategy to enhance its offerings and “deepen” customer engagement, all while prioritising cost discipline.

These goals are encapsulated in its latest growth strategy, PROGRESS27, which follows its previous “Together We Progress 24” strategy from 2022-2024.

This new strategy has three pillars – Best Service Bank, High Profitability Bank and Responsible, Purposeful Bank.

“In a market where product differentiation is limited, our ‘right-to-win’ strategy is anchored on delivering leading levels of service and speed, complemented by customised value propositions that address the specific needs of our customers,” group managing director/group chief executive officer Datuk Mohd Rashid Mohamad tells StarBiz 7.

By 2027, the bank, the fourth largest in the country by asset size, wants to have achieved a return on equity (ROE) of 12%, reduce its cost-to-income ratio (CIR) – which reflects how tight a ship it runs – to below 44.8%, and maintain a gross impaired loan (GIL) ratio not exceeding 1.30%.

Notably, for the financial year ended Dec 31, 2024 (FY24), RHB’s ROE, a measure of profitability, stood at 10.04%.

In comparison, Malayan Banking Bhd, the largest bank in the country, saw an ROE of 11.1% while Public Bank Bhd’s ROE was 13.2%.

For FY24, RHB’s CIR was at 46.7%, down from 47.5% in FY23 while its GIL was at 1.47%, down from 1.74% in FY23.

Mohd Rashid says under PROGRESS27, the bank, which counts the Employees Provident Fund as its largest shareholder, will execute a multi-pronged strategy which includes expanding loans in specific segments where it sees high growth potential such as small medium enterprises and mid-sized corporates, as well as in key economic corridors such as Johor, Penang and Sarawak.

Other key priorities are to drive current account savings account (Casa) deposits, enhance its online banking platforms and payment propositions, and to focus on customer engagement, digitalisation and product innovation.

“Growing fee-based income is a core priority under PROGRESS27, and we are driving this by focusing more on customer engagement and enhancing revenue streams across retail and non-retail clients,” Mohd Rashid says.

He says on the retail front, RHB is prioritising the expansion of wealth management and protection by introducing new investment solutions and insurance offerings.

“We are also integrating wealth advisory tools and customer relationship management platforms. Our goal is to achieve RM10bil in bancassurance and investment assets under management or AUM by 2027.”

On the non-retail front, he says the lender will adopt a “product-agnostic, customer-led” relationship model.

“We also expect additional fee income growth from our regional business, particularly in Singapore and Johor, driven by the Johor-Singapore Special Economic Zone.

“Here, we see strong potential for fee income growth through capital market opportunities, foreign exchange transactions and strategic advisory services.”

Mohd Rashid notes that under PROGRESS27, the lender is focused on expanding higher-yielding segments while maintaining prudent risk management and asset quality.

“Simultaneously, we are optimising our funding mix by strengthening Casa deposits, reducing reliance on higher-cost funding, and ensuring a resilient and cost-effective balance sheet.”

He expects net interest margin to remain resilient, with potential for upside driven by a stronger asset mix and disciplined pricing strategies.

As tech investments remain integral to PROGRESS27, RHB has earmarked about RM800mil to RM1bil for IT and digital transformation capex, covering both initiatives under PROGRESS27 and business-as-usual technology investments.

Mohd Rashid says the bank recognises that system uptime is crucial towards delivering good service. “On that front, we are continuously improving our core systems to ensure resiliency.”

Cost discipline

Cost discipline, he notes, is another key factor central to PROGRESS27.

“Digitalisation and automation are key drivers in improving operational efficiency and lowering costs, allowing us to streamline operations while enhancing service delivery.

“We will also be leveraging on our procurement capabilities, utilising deeper use of spend analytics, enhancing our procurement planning and procuring strategy, consolidating to gain cost scale advantage as well as working with strategic partners to identify cost reduction opportunities.”

Mohd Rashid says as the bank continues to embrace automation and artificial intelligence or AI to enhance efficiency and customer experience, it remains committed to ensuring its workforce remains a core part of growth.

“Workforce planning is an ongoing process, and we continuously assess our talent needs in line with business changes.

“While there may be adjustments in the future, our priority is to manage any transition responsibly by upskilling and reskilling employees within the group.”

Another key priority for the bank is scaling sustainable finance solutions, including green loans and transition financing.

As at December 2024, the bank had RM42.6bil in sustainable financial services, which is 85% against its RM50bil sustainable financial services target for 2026. It recently set a new target of RM90bil in sustainable financial services by 2027.

As for overseas operations, Mohd Rashid notes that these continue to contribute positively to the lender’s overall performance.

Under PROGRESS27, Singapore remains a key market, he says, with continued expansion in asset base, wealth management and cross-border banking solutions. For FY24, Singapore recorded a pre-tax profit of S$99mil.

With all of its plans in place, he admits that scaling PROGRESS27 will come with its own set of challenges.

“We are prepared to navigate them strategically. Market uncertainties and economic shifts remain key considerations, as they could impact investment sentiment and business confidence. Internally, one of our key challenges is ensuring that our talent remains agile and future-ready.”

He reckons on the whole, the banking sector remains resilient and well-positioned for growth over the next three years, supported by a stable economic environment and proactive regulatory measures.

“While global economic shifts and trade policies may introduce uncertainties, Malaysia’s diversified trade partnerships and strong domestic fundamentals provide stability.

“Across the industry, banks are focusing on three key areas to drive future growth: wealth management, green financing, and facilitating cross-border connectivity flows.”

For FY24, RHB made a net profit of RM3.12bil, up from RM2.81bil in FY23. It declared a second interim dividend of 28 sen per share, which brings total FY24 dividend to 43 sen per share. At last look, its share price was at RM6.81.