RAM Ratings assigns final AA3 rating to RHB Investment Bank’s Proposed Subordinated Notes

Published on 05 December 2012

RAM Ratings has assigned a final AA3/Stable/- rating to RHB Investment Bank Berhad’s (“RHB Investment” or “the Bank”) Proposed Subordinated Notes of up to RM245 million. Concurrently, we have reaffirmed the Bank’s AA2/Stable/P1 financial institution ratings and also the AA3/Stable/- rating of the debt securities issued under its existing RM245 million Subordinated Notes Programme. The Bank’s financial institution ratings mirror those of RHB Bank Berhad (“RHB Bank”) – the core entity of RHB Capital Berhad. Given RHB Investment’s integral role within the larger universal-banking group, support from RHB Capital Group is expected to be forthcoming, if needed.   

RHB Investment is a prominent player within the Malaysian investment-banking arena with an established franchise in both the domestic debt and equity capital markets. On this note, the proposed merger between the Bank and OSK Investment Bank Berhad (“OSK Investment”, rated A1/P1, positive Rating Watch by RAM Ratings) will create the largest domestic stockbroker in the country. Besides leveraging on OSK Investment’s niche in arranging small- to mid-market deals, RHB Investment will also gain instant access to the former’s regional markets in Thailand, Singapore, Indonesia, Hong Kong, China and Cambodia for cross-border transactions. While recognising the benefits of a regional investment-banking franchise and income diversity, we note that integration challenges may arise, particularly in terms of human-capital retention and cultural differences.

The Bank’s earnings profile is inherently volatile given its substantial involvement in capital markets and stockbroking, which are closely correlated to market conditions and sentiment. In FYE 31 December 2011 (“FY Dec 2011”), RHB Investment recorded a pre-tax profit of only RM37.9 million (FY Dec 2010: RM89.5 million), mainly due to weaker net interest income and RM35.8 million of impairment losses on investments. Nonetheless, the Bank’s pre-tax profit improved to RM48.6 million in 1H FY Dec 2012, following a pick-up in its investment-banking activities. As at end-June 2012, its tier-1 and overall risk-weighted capital-adequacy ratios stood at a robust 24.3% and 34.8%, respectively.

Media contact

Kwan Ji-Ling

(603) 7628 1115

jiling@ram.com.my