RHBBANK: Strong Half-Year Performance Driven by Cost Efficiencies and Strategic Gains

A major financial institution reported a robust 7.0% year-on-year increase in net profit for the first half of fiscal year 2025 (1HFY25), reaching RM1,554 million. The results aligned with analyst expectations, demonstrating a slight improvement in annualised Return on Equity (ROE) to 9.38% from 9.22% last year. This strong performance was primarily attributed to the effective execution of its PROGRESS27 strategy, bolstered by healthy loan growth, increased non-fund based income, disciplined cost control, and significantly lower credit loss allowances.

Performance Highlights

Net fund-based income expanded by 5.3% year-on-year, driven by robust loan volumes. However, the Net Interest Margin (NIM) experienced a slight compression to 1.81% in 1HFY25, falling short of the FY25 target range of 1.86-1.90%. This was mainly influenced by a downward trend in the Singapore Overnight Rate Average (SORA) and softer domestic NIM. The institution also maintained an interim dividend of 15 sen per share, reflecting a 42% payout.

Total loans advanced by 5.9% year-on-year, consistent with the institution’s revised guidance. Growth was particularly strong in domestic operations, including Community Banking, Retail (mortgages, auto finance, unsecured business loans), and Group Wholesale Banking. Customer deposits broadened by 4.4% year-on-year, with Current Account Savings Account (CASA) deposits rising by 5.1%, enhancing the CASA ratio to 28.3%.

Non-fund-based income declined by 10.8% year-on-year, primarily due to a contraction in treasury income and lower gains from fair value changes on securities. While fee income also weakened, this was partially offset by increases in Investment Banking related fees and other service income. Operating expenses expanded by 2.1% year-on-year, driven by higher marketing expenses and IT enhancements, which contributed to an increase in the cost-to-income (CTI) ratio to 47.3%, against management’s target of 45.5-46.0% for FY25.

Cost Management and Asset Quality

Despite the rise in operating expenses, the institution achieved significant cost reductions, saving RM45 million in the first half and remaining on track for its full-year cost reduction target of RM500 million over a three-year horizon.

A key positive was the substantial improvement in asset quality. Total allowances for credit losses significantly decreased to RM195 million from RM360 million a year ago, with the credit cost falling sharply to 18 basis points from 32 basis points in 1HFY24. The gross impaired loans (GIL) ratio also strengthened to 1.51% from 1.76% in 2QFY24, while loan loss coverage improved to 77.5%. The institution’s capital position remains robust, with CET1 and Total Capital Ratios at 15.9% and 18.3%, respectively, as of June 2025.

Outlook and Analyst Recommendation

Management maintains a cautiously optimistic outlook despite a weaker macro environment, reaffirming its commitment to the PROGRESS27 roadmap. An earnings uplift is anticipated in the second half, driven by projected higher non-fund based income, strategic deposit repricing, growth in higher-yield segments, potential fair value gains, wealth management initiatives, and contributions from a new bancassurance partnership. Although NIM guidance was revised downwards to 1.80-1.83%, proactive liability management is expected to help cushion funding cost pressures and potentially push NIM towards the higher end of the range (1.88-1.91%). Asset quality is projected to remain stable, with minimal signs of deterioration.

TA SECURITIES has maintained its “BUY” recommendation, setting a target price of RM0.25. This target price implies a potential upside of 25.0% from the last traded price of RM0.20, underpinned by an implied Price-to-Book Value (PBV) of approximately 0.85x, and includes a 3% ESG premium.