PETALING JAYA: Home loans and auto finance are expected to be the main driver of loan growth for RHB Bank Bhd.
Malaysia’s fourth-largest lender remains confident it is on track to meet its 4-5% loan growth targets this year, despite a tough economic environment.
However, the net interest margin is likely to weaken in the medium term due to the revaluation of its products.
This was noted by Kenanga Research, citing RHB Bank CFO Nik Rizal Kamil Nik Ibrahim Kamil.
“At present, the group’s loan growth forecasts still appear to be intact. This is fueled by the demand for home loans and car finance, although it is likely to be slowed down by a lower number of SMEs (small and medium enterprises) as current economic conditions are not favorable for business ” the brokerage said in a note.
“New demands for economic reopening should help improve year-end performance when the national vaccination rate increases,” he added.
Regionally, said Kenanga Research, RHB Bank’s operations in Singapore are poised to perform better than Malaysia on the more successful containment of Covid-19 by the former, while operations in other regions, such than Cambodia and Thailand, should be moderate.
He noted that RHB Bank management maintains its net interest margin or NIM forecast unchanged at 2.06% (excluding change loss) for the time being.
Meanwhile, the new opt-in moratorium was in its infancy, so the group were unable to comment on their expected turnout. Nonetheless, RHB Bank was confident it would be lower than last year’s general automatic moratorium.
RHB Bank’s modification loss due to the moratorium amounted to RM 418 million for the fiscal year ended December 31, 2020. The group expects the modification loss for this round to be lower.
The Bottom-40 segment, the group most affected by the Covid-19 fallout, accounted for only 21% of RHB’s total consumer loan portfolios, which couldn’t be too damaging assuming full applications were to be made. made from here.
The group’s targeted repayment assistance still amounted to around 10% of the total outstanding loans, with gradual reclassifications being offset by new requests, not thanks to the struggles of extensive movement controls.
Kenanga Research maintained its “outperform” call on RHB Bank, with a price target of RM 6.15. “For the moment, we believe that RHB Bank still holds a resilient position in the face of macroeconomic uncertainties. It also serves as prudent stock selection with its leading CET-1 ratio of around 16%, which allows more leeway to implement capital management strategies, ”the brokerage explained. .
“Although management is targeting a 50% dividend payout ratio, we are maintaining our cautious expectations at 35%, which will nonetheless generate returns close to 5%. As such, investors could potentially benefit from dividend surprises, ”he added.
RHB Bank shares were last traded at RM 5.25, down one s.
According to Kenanga Research, RHB Bank’s cost of credit would likely be at the top of management forecasts by 30 to 40 basis points.
“With the recent developments and recognition needs triggered by the moratorium, it is likely that we may see further overlays being charged (currently over RM 600 million) in the coming quarters and driving the bank to the end. of the range, ”he said. noted.
“On the other hand, it could indicate high levels of use in the years to come if the lockdown measures soften associated with the reopening of the economy,” he added.