PETALING JAYA: RHB Bank
Bhd’s management has shared that there is sufficient runway to reposition the bank’s portfolio and capitalise on market opportunities for the fourth quarter ending Dec 31, 2026 (4Q26) after surging Malaysian Government Securities (MGS) yields weigh on non- interest income (NOII) in 3Q26.
Hong Leong Investment Bank (HLIB) Research said the bank’s near-term outlook faces pressure from elevated MGS yields, which could weigh on its 3Q26 NOII, but that management appears less downbeat on the 4Q26 outlook should MGS yields stabilise or retrace.
The research house, which recently met with the bank’s management, maintained a “hold” call and target price of RM8 based on implied one time 2027 price to book, as most near-term drivers have been baked in, with no stronger immediate catalyst.
“We came away from a recent meeting with RHB’s management feeling neutral on its earnings trajectory and asset quality outlook,” it said, with weaker trading income largely inevitable given the limited runway for recovery during 3Q26.
“While stronger wealth, bancassurance/takaful, investment banking, brokerage and loan-related fees should provide some cushion, these are unlikely to fully offset the trading-income shortfall.”
The research firm said the impact on 3Q26 should be viewed more as a foregone trading upside rather than outsized losses, given RHB’s relatively small trading book.
The Treasury has been tactically unwinding securities positions, crystallising gains where possible while reducing exposure.
The bank’s return on equity (ROE) target range of 10.8% to 11% appears within reach despite the NOII headwinds, but only towards the lower end as the burden increasingly shifts to core operations, with loan growth of 6% and management having reset cost growth to less than or equal to 1%, providing scope for better operating leverage.
“Credit cost is tracking around the lower end of its 13 basis points (bps) to 14bps guidance, with management comfortable at 13bps and hopeful of achieving 12bps should recoveries materialise,” HLIB Research said. Wealth sales have also risen 35% year-on-year as of June 2026, while bancassurance/takaful, brokerage and loan-related fees continue to gain traction.
Taken together, these levers should partially cushion the NOII drag, although the path towards the upper end of management’s ROE ambition has become more challenging amid elevated bond yields.
Capital management remains an important medium-term catalyst, with management targeting more clarity on its capital/dividend policy by 1Q27. The priority would be to ensure operations and targeted growth trajectory can be adequately funded while sustaining Common Equity Tier 1 around current levels.
Should these growth requirements be met without absorbing the existing surplus, the excess capital could potentially be fully returned to shareholders.
The existing dividend remains respectable, with projected dividend yield of 6.5% for the financial year ending Dec 31, 2027.
