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PETALING JAYA: Although there is a concern for RHB Bank Bhd’s relatively high oil and gas (O&G) exposure in Singapore, which accounts for 15% of total O&G loans, the exposure is still manageable, according to Maybank IB Research.
The research house said on Wednesday that it believe that the risk relating to the group’s O&G exposure in the city state is contained.
“Assuming the gross impaired loan (GIL) on the Singapore O&G book doubles and the aggregate loan loss coverage (LLC) is 60% (corresponding to the LLC on its steel portfolio), RHB would have to set aside additional provisions of RM135mil, which is a manageable 6% impact to financial year 2017 (FY17) earnings, it added.
O&G loans currently account for 3.6% of total loans, for which GIL ratio is about 10%, with a LLC of 25%. Of the 3.6% of O&G loans exposure, i.e. about RM5.56bil, of which 84% (RM4.67bil) is in Malaysia, 15% (RM834mil) in Singapore and 1% (RM57mil ) in Thailand.
To recap, RHB’s asset quality deteriorated in Q4 16, impacted by certain corporate accounts in the O&G sector, which resulted in a higher GIL ratio of 2.43% end-Dec 2016 versus 2.25% end-Sept 2016 and 1.88% end-Dec 2015.
Credit costs jumped to 80 basis points (bps) in Q4 16 from 38 bps in Q3 16, due to additional provisions for its O&G and steel loans. LLC end-2016 was just 56.5%, 74.7% including regulatory reserves.
Maybank IB noted that RHB’s loan loss coverage (LLC), at 57% (75% including regulatory reserves), was still the lowest among its domestic peers.
Although provisions will be topped up as part of the MFRS9 exercise at the end of this year, but the banking group’s management is confident that it will not need to raise additional capital over the next few years, despite the impact of the new accounting standard (MFRS9).
On a fully loaded basis, RHB group’s CET1 ratio is adequate at 12% (11% at the bank level), the research house added.
The brokerage is also raising its earnings forecasts marginally by 2% for FY 18/FY 19 to factor in higher non-interest income assumptions, given the strong pipeline of infrastructure jobs domestically.
Return on equity (ROE) forecast of 9.6% for FY17 is at the midpoint of management’s 9-10% forecast for this year, it noted.
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