RAM Ratings assigns AA2 and AA3 ratings to RHB Bank’s proposed multi-currency MTN

Published on 02 April 2014

RAM Ratings has assigned respective AA2/Stable and AA3/Stable ratings to the senior notes and subordinated notes to be issued under RHB Bank Berhad’s Proposed Multi-Currency MTN (MCMTN) Programme of up to RM5 billion (the Proposed MCMTN Programme). Concurrently, RAM has reaffirmed RHB Bank’s AA2/Stable/P1 financial institution ratings, along with the respective ratings of the Bank’s outstanding debt instruments (refer to Table 1 below).

Table 1: RHB Bank’s issue ratings

Instrument	Ratings
RM3 billion MCMTN Programme (2011/2031)  -     Senior Notes  -     Subordinated Notes	AA2/Stable AA3/Stable
RM600 million Hybrid Tier-1 Securities Programme (2009/2069)	A1/Stable
RM3 billion MTN Programme (2007/2027)  -     Senior Notes  -     Subordinated Notes	AA2/Stable AA3/Stable

Note:
A 1-notch differential between RHB Bank’s long-term AA2 financial institution rating and its AA3 issue ratings reflects the subordination of the debt facilities to the Bank’s senior unsecured obligations. A 2-notch rating differential reflects the deeply subordinated nature and embedded interest-deferral feature of the hybrid instrument.

RHB Bank is the fourth-largest banking group in Malaysia in terms of assets. The Bank’s ratings are supported by its established domestic franchise in commercial banking, sound funding and liquidity position, as well as healthy capitalisation. Nonetheless, the Bank's ratings are moderated by its asset-quality indicators, which are weaker than the corresponding industry averages.

The subordinated notes to be issued under the Proposed MCMTN Programme are Basel III-compliant, and subject to a contingent write-off feature. RAM believes that the risk of a Malaysian bank being non-viable is adequately captured in its long-term rating. This view incorporates our interpretation of the circumstances that would constitute a non-viability event, as articulated in Bank Negara Malaysia’s Capital Adequacy Framework on Capital Components. The subordinated notes under the Proposed MCMTN Programme are rated 1 notch below RHB Bank’s long-term financial institution rating, to reflect their lower priority of claims upon bankruptcy or liquidation, relative to the Bank’s senior unsecured creditors.

In 9M FY Dec 2013, the Bank’s loan portfolio expanded 8.5% to RM119 billion. Its gross impaired-loan ratio (GIL) remained largely unchanged at 2.8% as at end-September 2013 - weaker than the industry average of 2.0%. Its GIL coverage ratio also stayed relatively low at 62.5%. The Bank’s credit-cost ratio, meanwhile, had increased to an annualised 0.4% in 9M FY Dec 2013 (FY Dec 2012: 0.1%) due to higher loan-impairment charges, stemming from 2 lumpy impaired corporate loans. The heftier loan provisions had resulted in an 8% y-o-y decline in the Bank's pre-tax profit for the 9-month period. Nonetheless, RHB Bank's capitalisation levels are still healthy, with respective common-equity tier-1 and total capital ratios of 10.0% and 14.2% as at end-September 2013.

We note that RHB Bank has maintained a sound funding and liquidity position. Its lending activities continue to be funded by a stable pool of customer deposits, although the Bank's proportion of current- and savings-account deposits to total customer deposits remain lower than the industry average. As at end-September 2013, the Bank's loans-to-deposits ratio had increased to 88%, which is still deemed sound.

Media contact
Kwan Ji-Ling
(603) 7628 1115
jiling@ram.com.my