RAM Ratings has reaffirmed RHB Bank Berhad’s (the Bank) AA2/Stable/P1 financial institution ratings, as well as the

Published on 23 November 2016

RAM Ratings has reaffirmed RHB Bank Berhad’s (the Bank) AA2/Stable/P1 financial institution ratings, as well as the issue ratings of the Bank’s securities. The reaffirmed ratings reflect RHB Bank’s strong domestic franchise as Malaysia’s fourth-largest banking group. The rating action also considers RHB Bank’s stronger capitalisation, which provides a healthy buffer against the recent weakening in its asset quality that has affected its earnings.

Although the Bank’s asset quality had been improving, this trend has reversed of late. The Bank’s gross impaired-loan (GIL) ratio had deteriorated to 2.1% as at end-June 2016 (end-December 2015: 1.9%), following the restructuring of several large corporate loans. Amid persistently feeble oil prices, further weakness in the Bank’s asset quality is likely to stem from its exposure to the oil and gas (O&G) sector, which amounts to about 3% of its gross loans. RHB Bank’s credit-cost ratio is expected to rise in fiscal 2016 (fiscal 2015: 0.2%).

Given the expected rise in credit costs and impairment charges, the Bank’s profitability is expected to remain subdued this year. RHB Bank’s pre-tax profit in 1H FY Dec 2016 declined 13% y-o-y, primarily due to impairment losses on an O&G-related bond exposure. More costly funding had also exerted pressure on its net interest margin, which has been trending downwards.

RHB Bank’s credit metrics are supported by its healthy capitalisation levels. A RM2.5 billion capital injection formed part of a corporate restructuring exercise that had led to the Bank becoming the apex holding company of the RHB banking group. This had in turn lifted the Bank’s common-equity tier-1 capital ratio to 13.1% as at end-June 2016 (end-December 2015: 11.6%, before the corporate restructuring).

Instrument	Rating	Rating Outlook
RM5 billion Multi-Currency MTN Programme (2015/2045) -     Senior Notes -     Subordinated Notes	AA2 AA3	Stable Stable
RM3 billion Multi-Currency MTN Programme (2011/2031) -     Senior Notes -     Subordinated Notes	AA2 AA3	Stable Stable
RM3 billion MTN Programme (2007/2027) -     Senior Notes -     Subordinated Notes	AA2 AA3	Stable Stable
RM600 million Hybrid Tier-1 Securities Programme (2009/2069)	A1	Stable

Analytical contact                                        Media contact
Joanne Kek                                                    Padthma Subbiah
(603) 7628 1163                                            (603) 7628 1162
joanne@ram.com.my                                     padthma@ram.com.my