Even prior to the tariff challenges and the US-China trade war, some analysts had deemed RHB’s 12% ROE goal a stretch.
The new strategy, which runs from 2025 to 2027, sees the country’s fourth largest of eight banking groups by assets also aiming to contain its cost-to-income ratio — a key indicator of operational efficiency — at below 44.8% by end-2027 from 46.7% last year, and its gross impaired loan (GIL) ratio, an indicator of asset quality, at below 1.3%. Its GIL ratio stood at 1.47% as at end-2024.
Though mindful of the challenges that the tariffs and trade war pose, RHB group managing director and group CEO Datuk Mohd Rashid Mohamad comes across as optimistic about being able to execute its P27 plans. He sees no need to revise any of its targets for now, considering that things are still evolving on the tariff front.
“Of course, the excessive tariffs were not there when we developed P27,” he tells The Edge in an interview. “We don’t know yet what [the rates] will be at the end of the 90 days, [but] our multi-year programme is agile, enabling it to withstand external pressures.”
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He notes that targets are set in each of the three years and are assessed progressively, with the ROE target for this year being 10.4% to 10.8%. “We’ve got things down to a granular level, where we can see [over short periods] what is working and what isn’t, so if we need to catch up, we know where adjustments need to be made,” he explains.
An early assessment shows that RHB’s exposure to customers that export goods to the US and China and its supply chain is approximately 3.5% of total group loans currently, he shares. The indirect impact from the tariffs, however, is more difficult to determine at this stage given that developments are still fluid.
“I think it will potentially have an impact on our bottom line but, for now, because of the uncertainties, most of us are still in a wait-and-see position, so we are not changing our targets as yet, not even for this year,” Rashid says.
In any case, any impact from the tariff is likely to be felt by banks only towards the latter part of this year. “The tariff effects, you will likely not see in the first half of this year because a lot of activities are still going on, still intact, as the rate [imposed on Malaysia] is 10%, not 24% yet, and we don’t know what the final rate will be. If anything, I think the main [impact] will be in the final quarter.”
RHB has taken proactive action by identifying customers that could potentially be hurt by the knock-on effects of the tariffs, and gauging if there is a need for a rescheduling and restructuring (R&R) of their loans. “I think all banks are doing so, as we learnt from the Covid period. If a customer needs assistance, from the very beginning we will look at that,” Rashid says.
Last year, RHB’s GIL ratio improved significantly to 1.47% from 1.74% a year earlier, with the resolution of two major corporate exposures. This helped lift its loan loss coverage ratio (not including regulatory reserves) to 78.6%.
The group has revised downwards its in-house economic growth forecast for Malaysia this year to 4.5% from 5%. “The downside risks of growth slowing to 3.5% to 4% appear limited, thanks to recent progress in US-China trade talks,” its economics team said in a May 16 report.
RHB’s net profit fell 18.1% to RM2.03 billion in FY2020 ended Dec 31, 2020, the first year of the pandemic, before going on to improve in each of the years thereafter, hitting a record high of RM3.12 billion ($615.5 million) in FY2024. It was, notably, the first time the group’s earnings breached the RM3 billion mark. Analysts tracked by Bloomberg estimate that it will, on average, make RM3.29 billion this year.
Its total dividend per share last year amounted to 43 sen in cash, its highest ever, and represented a payout ratio of 60.1%.
Eyeing high profits and best service
Rashid, who took the helm at RHB in April 2022, is now in his second term as the group head honcho, having had his contract renewed for another three years.
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His first corporate strategy, codenamed Together We Progress 24 (TWP24), that ran from 2022 to 2024, was about continuing RHB’s growth momentum and making it a customer-centric bank. Having laid a good foundation, the group is now aiming higher under P27 — in particular, it wants to be the best in service and a high profitability bank.
“We want to focus on being a high profitability bank. When we look at our journey and position [as a mid-sized bank], we don’t have the scale to compete with the big banks. Let’s be realistic about that. Because when we grow, they grow too, which leaves us in the same position.
“So, the next best thing to look at is profitability. We delivered ROE of 10.04% last year. That’s just the beginning. From this year on, we are focused on driving even greater profitability.”
To do that, RHB will pursue above-industry loan growth in Malaysia, focusing on accelerating growth in higher-yield segments, particularly in mid-sized companies or what it calls the “middle market”.
“The middle market, which falls between the SME (small and medium enterprise) and commercial segments, is a segment that we did not grow enough in the last couple of years. This is something we want to grow.
“Barring unforeseen circumstances, the group’s overall loans over the course of P27 are targeted to grow between 5% and 7%, with our targeted loan segments growing more,” he says.
Last year, the group’s loans expanded by 6.9% to RM238 billion. SME loans grew by 1.7% to around RM28 billion.
Rashid is of the view that compression in net interest margin (NIM) — a key measure of profitability that indicates what a bank earns in interest on loans against what it pays out to depositors — will continue to be a challenge for banks.
“I believe NIM compression is going to stay. By that, I mean we’re not going back to where NIM used to be at around 2%. We’re guiding the market that our NIM will be from 1.86% to 1.9% this year,” he says, adding that the bank currently expects Bank Negara Malaysia’s overnight policy rate to stay put at 3% this year. RHB’s NIM stood at 1.86% last year compared with 2.24% in 2022.
In order to reduce its cost of funds, RHB is targeting to increase its current account and savings account (Casa) deposits ratio to at least 30% in Malaysia by 2027, from 27.6% last year.
Analysts note that it will have its work cut out on this front, given the intense race for Casa deposits among all banks.
“I know it’s a bit of a tall order, but I want to make sure, based on the plans we have laid down, that we look at increasing Casa by 10% a year [over P27),” Rashid says.
Specific propositions, such as the expansion of its MySiswa student deposit programme with 20 public universities and enhancements in its multicurrency debit card deposit programme, will be key to boosting Casa, he says.
The MySiswa inititiative, made possible through an exclusive partnership that RHB has with the Ministry of Higher Education (MoHE), sees students holding a matriculation card that doubles as a debit card. “We are now expanding that to vocational colleges. We’ve signed up with 96 colleges, and will roll it out in stages,” Rashid says.
The Casa deposits from students have proven to be “stickier” than expected, he notes. As at end-2024, the RHB MySiswa debit card initiative contributed RM436 million in Casa and RM3.8 billion in fixed deposits. RHB currently provides banking services for close to 500,000 public university students through MySIswa.
Rashid is particularly pleased at the improvement in RHB’s net promoter score (NPS) in recent years, with the bank ranking No 2 in the industry as at end-2024 after Malayan Banking, from No 4 in 2021. The NPS, a measure of how satisfied and loyal customers are, is an area of increasing focus among banks, especially smaller ones looking for a competitive edge.
“We want to be known as the best service bank. We are No 2 now, but we aim to be No 1. We always want to be better. One example of how is, we have introduced RHB Ask within the organisation, which is like an internal ChatGPT for all our staff, aimed at addressing customer pain points. When customers have a question, we go to RHB Ask and are able to provide faster and more consistent responses across the bank,” he explains.
Under P27, RHB plans to remodel group wholesale banking client relationships and strengthen its advisory capabilities and tools to enable higher fee income growth. Its non-interest income (NOII) to total income ratio stood at a decent 32.7% as end-2024 compared with 20.9% a year earlier. Rashid plans to sustain the ratio at above 30%.
Challenging overseas markets
Last year, RHB’s group international business, driven mainly by Singapore, reported a profit before tax of RM103.8 million compared with a pre-tax loss of RM182.6 million the year before. The group is also present in Thailand, Cambodia, Brunei and Laos.
“We are primarily a domestic driven bank with overseas operations contributing less than 5% to group profit last year,” Rashid says, adding that under the P27 strategy, RHB aims to gradually increase this to around 10% over time. “The overseas operations will likely remain challenging this year, in particular, given that some of the countries we are in will be impacted [by tariffs] more than Malaysia. Like Singapore, which is structurally more export-oriented than us, despite a tariff of just 10%.”
The group’s Thailand and Cambodia operations in particular have proven to be challenging in recent years given their relatively slow economic recovery since the pandemic. “We’re reassessing what type of segments we want to be in, in those two countries. We were very much into SMEs before Covid. The good thing is, in Cambodia, all our lending is secured by collateral,” says Rashid.
Despite the challenges, there are currently no plans for RHB to exit those markets, he adds.
What it does plan to do, however, is strengthen the leadership in its overseas markets. “In Singapore, we appointed Goh Ken-Yi as the new CEO [since April 1]. We are also assessing the other country CEOs,” Rashid says.
Goh, the former deputy CEO of RHB Singapore, succeeded Danny Quah who took on a broader role as managing director of group international business. Quah had been the CEO and country head since 2019.
Meanwhile, Rashid says there are no plans for mergers and acquisitions (M&A) under P27. Be that as it may, given that RHB’s biggest shareholder is the Employees Provident Fund (EPF), which also holds sizeable stakes in other banks, many often speculate that there could be M&A down the road. EPF holds a 38.84% stake in RHB, while businessman Tan Sri Ong Leong Huat — via OSK Holdings — holds 10.27%.
“If there was an opportunity, and if we were asked to look at those opportunities, we will definitely look at it. For now, I can assure you, we are not looking at any,” Rashid remarks.
Bloomberg data shows that there are currently 14 “buy” and four “hold” calls on RHB. There are no “sell” calls. The 12-month target price is RM7.44, which suggests further upside from its closing of RM6.79 on May 23. At that price, RHB has a market value of RM29.6 billion.
“We reiterate our “buy” rating on the stock, in spite of the risk that some goals might be challenging to achieve,” says Nomura Research banking analyst Tushar Mohata in a March 7 report after the group unveiled P27.
“Note that, even we/consensus just forecast a 10%/10.1% ROE for FY2027 (pre-dividend), which suggests that the scepticism [of achieving the ROE target of 12%] is already priced in, and there is scope for upside surprise should the bank meet targets even partially. We still forecast a good dividend yield of 6.5%/6.9% for FY2025/FY2026, which should limit downside risk for the stock,” he adds.
