This article first appeared in The Edge Malaysia Weekly on December 27, 2021 - January 2, 2022

This is the second consecutive year that RHB Bank Bhd has won the award for the highest returns to shareholders over three years, from March 30, 2018, to March 31, 2021, in the financial services sector with a market capitalisation of RM10 billion and above.

The country’s fourth largest banking group recorded a 5.5% return for the three-year period despite the extra volatile share price pattern due to the Covid-19 pandemic, which rocked global equity markets in the first half of 2020, including Malaysia’s.

RHB Bank’s share price lost ground when the pandemic took centre stage last year. From RM5.70 in early March, it slid to a low of RM4.17 in November last year as banking stocks were among the selling targets at the time and RHB Bank’s prospects are highly sensitive to the economic weather. The poor sentiment was then further dampened when banks globally were told to conserve cash by putting the brakes on dividend payments. 

Nonetheless, the stock rebounded strongly last December, reaching a peak at about RM6. It closed at RM5.37 on March 31 this year. 

It could be a saving grace for shareholders who have held onto the stock during the three-year period, that it still yielded a little gain.

In addition, shareholders did receive dividends over the past three financial years, although the bank needed to conserve cash to build a buffer. 

RHB Bank declared a gross dividend per share of 20.50 sen in financial year 2018 (FY2018), 31 sen in FY2019 and 17.65 sen in FY2020. A total of 69.15 sen per share has been declared for the three-year period, with the payout ratio in the range of 35% to 50%. 

The banking group’s net profit stayed above RM2 billion between FY2018 and FY2020. It is worth noting that its loan impairment ratio has been on the decline from 2.23% in FY2017, to 2.06% in FY2018 and 1.71% in FY2020.

For the cumulative six months ended June 30, 2021 (1HFY2021), the group’s net profit expanded 39% to RM1.35 billion from RM971.65 million in the same period a year ago, underpinned by higher net fund-based income and lower net modification loss. 

Its gross loans and financing grew 5.7% year on year to RM191 billion, mainly supported by growth in mortgage, auto finance, small and medium enterprises and the Singapore market.

Gross impaired loans stood at RM3.1 billion as at end-June 2021, while the gross impaired loans ratio dipped further to 1.63% compared with RM3.4 billion and 1.87% respectively as at end-June 2020. 

Year to date, RHB Bank’s share price has declined 0.55% against the 0.99% drop in the Bursa Malaysia Financial Services Index.

CGS-CIMB Research said in a Nov 9 note that the implementation of a prosperity tax will cause an 8.7% reduction in RHB Bank’s FY2022 net profit forecast, as the impact will more than offset the positive impact of overnight policy rate hikes. For FY2023, its net profit is forecast to grow 3.7%.

CGS-CIMB sees potential rerating catalysts from RHB Bank’s above-industry loan growth and a potential pick-up in the bancatakaful income from its tie-up with Syarikat Takaful Malaysia Keluarga Bhd with improvements in market conditions following the decline in new daily Covid-19 cases.

It is worth noting that RHB Bank is keen to venture into digital banking. Last June, it signed a heads of agreement with Boost Holdings Sdn Bhd, a subsidiary of Axiata Group Bhd, to form a consortium to apply for a digital banking licence from Bank Negara Malaysia. Under the agreement, RHB Bank would hold a 40% stake and Boost would own the remaining 60%.

Analysts believe both parties have a good chance of securing a licence as Axiata’s unit Celcom is already serving the under-banked while the group itself already has the framework to provide financial services. In addition, RHB Bank provides assurance of the digital bank’s ability to operate.

The Employees Provident Fund is the single largest shareholder of RHB Bank with a 41.83% stake.

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