This article first appeared in The Edge Financial Daily on February 28, 2020 - March 5, 2020

KUALA LUMPUR: RHB Bank Bhd cut its 2020 economic growth forecast to 4% from 4.3% it projected in December last year, mainly due to weaker global economic conditions and the impact of the Covid-19 outbreak on businesses.

For the fourth-quarter of 2019 (4Q19), the local economy slowed to 3.6% from 4.4% recorded a year ago.

“Following the announcement of the 4Q19 gross domestic product data and looking at what’s happening around the world with the outbreak of Covid-19, we have revised our forecast. We believe there are three key drivers of growth, namely private consumption, exports and private investment. Hopefully these will all pick up,” RHB group managing director Datuk Khairussaleh Ramli told a media briefing yesterday.

He believes there could be a possibility of another cut in the key overnight policy rate (OPR) this year.

“We expect 2020 business outlook to remain challenging. With the recent OPR cut and potentially further cuts, our net interest income would be adversely impacted. We are strengthening our efforts to mitigate any possible adverse effects to our asset quality,” he said.

The bank is expecting its loan portfolio to grow at 4% this year, supported by a resilient household sector. It recorded a loan growth of 4.3% year-on-year to RM176.2 billion last year, driven by mortgage, small and medium enterprises and its Singapore operations.

RHB Bank posted a record net profit of RM2.48 billion for the full financial year ended Dec 31, 2019 (FY19), up 8% from RM2.31 billion in the previous year, thanks to higher net income, lower expected credit losses for loans and higher write-back of impairment losses for financial assets.

Revenue also came in higher at RM13.53 billion in FY19 from RM12.69 billion in FY18.

For the fourth quarter ended Dec 31, 2019 (4QFY19), its net profit rose 9.8% to RM621 million from RM565.43 million a year ago, due to higher non-fund-based income and net fund-based income, and lower expected credit losses. Revenue for the quarter increased to RM3.42 billion from RM3.31 billion in 4QFY18.

RHB Bank also proposed a final dividend of 18.5 sen per share, amounting to RM741.85 million, for FY19. This brings total dividends for the year to 31 sen per share, representing 50.1% of FY19’s net profit.

“[Going forward,] we believe the non-interest income will still be the main driver and the fixed income portfolio is still strong in terms of potential gains. One thing we will also monitor closely is asset quality to help clients see through this difficult environment. Hopefully the situation does not worsen,” said Khairussaleh.

In a statement yesterday, RHB Bank said its net fund-based income for FY19 grew 0.4%, partly impacted by the OPR cut in May 2019 coupled with higher funding cost arising from the OPR hike in January 2018. Net interest margin for the year was 2.12% while return on equity was at 10.3%.

Non-fund based income rose significantly by 14.7% to RM2.14 billion, contributed largely by higher net trading and investment income, higher insurance underwriting surplus and higher capital market related fee income.