[RAM] Outlook on RHB Bank's ratings reverts to stable

RAM Ratings has revised the outlook on RHB Bank Berhad’s (RHB Banking Group) AA2 long-term financial institution rating (FIR) to stable from positive, while reaffirming its ratings. The revision follows heightened risks in the operating landscape since our last review of RHB Banking Group’s ratings in December 2019. As the ravaging effects of Covid-19 permeate the economy and weigh on borrowers’ debt-servicing ability, the highly challenging operating environment for the banking sector diminishes the prospect of any rating upgrade in the near term.

The stable outlook on RHB Bank’s ratings is underpinned by its strong loss absorption buffer in the form of regulatory reserves and pre-provision earnings, which are expected to sufficiently cushion potentially heftier credit impairments. Moreover, the Group’s capitalisation stayed sturdy with a common equity tier-1 capital ratio of 16.3% as at end-December 2019. RHB Bank continued to be among the best-capitalised in the industry. 

Given Bank Negara Malaysia’s relief measures, any impact arising from the pandemic on banks’ asset quality indicators would only surface early next year. About 70% of RHB Bank’s domestic loans will be eligible for the six-month automatic moratorium on loan payments. This in itself does not trigger a stage transfer for these loans (under the MFRS 9 impairment model) and thereby would not necessitate provisions. The Group will also have to facilitate requests by corporates to defer or restructure loan payments; the ultimate quantum of such loans remains to be seen at this juncture. 

The revision of the outlook on RHB Bank’s long-term FIR will also be reflected in the ratings of its debt programmes as well as those of RHB Islamic Bank Berhad and RHB Investment Bank Berhad, as listed in the table below.

Analytical contact
Loh Kit Yoong
(603) 3385 2493
kityoong@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my