Trade spillover expected to impact RHB's lending
PETALING JAYA: Spillover effects from trade tariffs may weigh on RHB Bank Bhd's corporate lending activities, cautions Kenanga Research.
This is despite the fact that RHB, which is 39.2%-owned by the Employees Provident Fund, has a minimal direct and indirect exposure to trade loans at below 2%.
Kenanga Research said that slight top-ups on provisions may be expected from further developments surrounding trade policies. Nevertheless, RHB's loan loss coverage ratio of over 115% looks 'sufficient' to weather through near-term uncertainties.
The group's mortgage segment (38% of the total loans) remains resilient and research house is anticipating continued growth on the back of stronger property sales in both primary and secondary markets.
'The group is also positioning to leverage the overall property development value chain, being present in both land and project financing,' it pointed out.
It is noteworthy that RHB had revised its loan growth target for the financial year of 2025 (FY25) from 6% to 7% to 5% to 6%, citing weaker economic forecasts amid ongoing global trade uncertainties.
'Though the group took a more conservative view on the operating landscape in the recent results reporting, some relief could be found in encouraging loans growth in certain pockets with net interest margin (NIM) pressures looking to alleviate.'
In the first quarter of FY25 (1Q25), RHB's NIM of 1.84% fell slightly behind its 1.86% to 1.90% target, no thanks to the decline in Singapore Overnight Rate Average (Sora) rates affecting its loan yields there (predominantly made up of variable rate loans).
Sora is the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank Singapore dollar cash market in Singapore between 8am and 6.15pm.
Kenanga Research noted that RHB expects NIMs to close well above 1.8% in the first half of FY25 as its fixed deposits in Singapore mature, allowing for repricing at lower rates and support margin recovery.
Domestically, the group believes it may continue to be selective with its deposit acquisition strategies, thanks to the release of the statutory reserve requirement, which could improve their NIMs by one basis point.
Kenanga Research has maintained its 'outperform' call on RHB and a target price of RM7.80 per share.
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