The charge rate for RHB credits should drop

PETALING JAYA: RHB Bank Bhd’s credit charge rate in fiscal year 2022 (FY22) could drop 20-30 basis points (bps), below its initial forecast of 30-40 bps.

This was revealed by RHB Bank Group CFO, Nik Rizal Kamil Nik Ibrahim Kamil, during the CGS-CIMB Research regional virtual conference held on November 9.

A credit charge-off rate (CCOR) is a metric that shows the percentage of credit balances in default compared to the total amount of credit outstanding.

CGS-CIMB Research said it was relatively more positive on RHB Bank after the event, given its lower CCOR forecast.

“We forecast a CCOR of 32 basis points for RHB Bank in FY22. We estimate that each one basis point reduction in CCOR from our projection will improve our FY22 forecast net profit for RHB Bank by around 0.5%,” the research firm noted.

He notes that under the banking group’s new three-year strategy called “Together We Make Progress 24” (TWP24), the bank aims to increase its return on equity (ROE) to 10.2% over the course of the year. FY21 to 11.5% in FY24, which is higher than CGS-CIMB Research’s projected ROE of 10.6% for FY24.

“Potential levers for increased ROE are improved credit costs, continued asset expansion (leading to increased net interest income), and improved operational efficiency,” added CGS-CIMB Research.

Another key takeaway from the session was that the bank sees a resumption of deposit competition in the banking industry.

To this end, the bank “will adopt a conservative position against it, to defend its net interest margin and maximize the positive impact of increases in the overnight rate (OPR)”.

RHB Bank also wants to expand its deposits in the small and medium-sized enterprise (SME) segment, in the form of operating accounts for SMEs – the primary accounts through which SMEs do all their banking – as well as salaries of their employees.

“We believe these types of deposits are stickier than most other types of deposits.” said CGS-CIMB Research.

While RHB Bank sees negligible contributions to earnings from its digital banking joint venture over the next few years, the bank said it would be able to benefit from this venture in terms of new technologies and technical know-how to manage a purely digital bank.

In addition, RHB Bank will be able to tap into the customer ecosystem of Boost, the fintech arm of Axiata Group Bhd..

The Boost-RHB Bank consortium obtained a digital banking license from Bank Negara last year.

Regarding the start of the new digital bank, RHB Bank said that it is now in the “construction” phase (the planning phase), where it formulates its technology plan and strategic plans.

The consortium plans to launch the new digital bank towards the end of 2023, according to CGS-CIMB Research.

“RHB Bank remains an ‘add’ and our top pick for the sector, as its projected 2022 dividend yield of 5.4% is one of the highest in the sector, while the stock trades at a price ratio / attractive earnings of 6.7 in 2023. times (vs. 10.2 times the industry average).

“Potential catalysts for revaluation are broader expansions in net interest margins amid the RPO bull cycle relative to peers and improvements in loan loss provisioning,” added CSG-CIMB Research.

However, the research firm cut its earnings per share forecast for FY22-24 slightly to between 0.4% and 0.8%.

This is assuming an increase in the group’s shareholding to 4.25 billion shares to take account of the 35.3 million new shares issued under its dividend reinvestment plan.

CSG-CIMB Research raised the share price target from RM7.46 to RM7.62.

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