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Friday, February 24, 2017

RHB expects better year ahead after O&G exposure hit in FY16

By Adam Aziz / theedgemarkets.com | February 24, 2017 : 7:46 PM MYT

KUALA LUMPUR (Feb 24): RHB Bank Bhd is expecting a better 2017, with less expenditure for impairments and provisions and a turnaround in its operations in Singapore, after the two areas were impacted by its oil and gas (O&G) exposure last year.

Impairments jumped 73% to RM595.2 million in FY16 from RM345.3 million in FY15, the bulk of which or RM253.5 million involved a one-off impairment on the bonds of Singapore O&G player Swiber Holdings Ltd in the second quarter of FY16.

“Of course we were affected by the O&G segment, and that sector is still going through consolidation. Obviously oil price has improved, but the capex band has reduced.

“But from our point of view we believe that what we went through last year was probably the worst in terms of provisions, and we are expecting a better year,” group managing director Datuk Khairussaleh Ramli told the press at a briefing on the group's FY16 performance today, adding that RHB’s current exposure to the O&G sector stood at around 3% as at end-FY16.

The decline in the O&G sector also significantly affected RHB’s Singapore operations, acknowledged Khairussaleh. RHB’s Singapore ops registered RM269 million in losses before tax, down from RM103 million in profit before tax for FY15. However, Khairussaleh expects the ops there to turn around this year.

“Yes, most of the impact there is from the O&G sector, as all banks have been affected. Having said that, I think opportunities are there for us to look at. There are always opportunities in mergers and acquisitions, not just in O&G. Even for Singapore, this year is going to be a better year,” he said, adding the bank is not closing any of its branches in the city-state.

The group is also not looking to expand to any other regions this year, he added while he brushed off the possibility of selling any of its businesses, particularly its insurance business, as previously reported.

“No, we don’t intend to (sell),” he said. “If you look at our portfolio, RHB Insurance is a very profitable business. Last year it generated revenue of RM100 million, with a 20% return on equity (ROE). It keeps generating cash on its own. It is giving us money and dividend,” he said. In comparison, RHB’s overall ROE was at 8.5% in FY16.

“From an ROE point of view, it is one of the best-performing businesses for us, so we should not be selling our best performers,” he added, but did not comment when asked if talks were initiated with any potential buyers.

Last August, Reuters reported that Japanese insurance entity Tokyo Marine Holdings Inc was in talks with RHB to buy out its general insurance business for US$500 million, in what would have been one of the most expensive non-life insurance acquisitions in the region.

RHB’s insurance business has a market share of about 3.6% in Malaysia, ranking the bank at 11th place in terms of market share.

Looking forward, the bank is expecting to lower its gross impaired loan ratio this year, after an increase to 2.43% in FY16 from 1.88% a year before, Khairussaleh said.

“Not all the impairments are non-performing loans. Some of them are for rescheduled and restructured (R&R) loans, and we believe some of these impairments can come back into our portfolio. Of course from an underwriting point of view, we need to be more selective in certain areas, and do business where the asset quality is better,” he said.

On loans growth, RHB posted a 2% growth for the full FY16, short of its revised target of 5%, as the first half of the year recorded only a 0.2% growth, with the bulk of expansion coming in in the second half. The bank is targeting a similar 5% loans growth this year — in line with industry expectations — on the back of more mortgage and loans for small and medium enterprises.

RHB Bank net profit declined 28% in the fourth quarter ended Dec 31, 2016 (4QFY16) to RM261.2 million from RM363.4 million a year ago, as revenue slipped 9.3% to RM2.56 billion from RM2.82 billion.

Net interest income was down 3.4% at RM860.6 million from RM890.7 million, while its bad loan allowance climbed 30% to RM308.7 million from RM237.6 million.

It announced a final dividend of seven sen per share for 4QFY16. In comparison, it declared a dividend of 16.33 sen per share for the same period in the previous year.

Full FY16 net profit grew a marginal 1.2% to RM1.68 billion from RM1.66 billion in FY15. Net interest income grew to RM3.45 billion from RM3.41 billion.

Besides FY16's spike in impairments, the group said FY15 had registered career transition scheme expenses of RM308.8 million, while it benefited from collective allowances written back due to model refinement on mortgage portfolio amounting to RM131.4 million.

"Excluding the effects of these items, normalised net profit increased by 4.2% year-on-year," it said.

The group expects to maintain its cost-to-income ratio, which stood lower at 50% in FY16 compared with 53.8% last year.

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