PETALING JAYA: Housing loans and auto financing are expected to be the main driver of loan growth for RHB Bank Bhd.

       The fourth largest lender in Malaysia remains confident that it is on track to meet its loan growth guidance of 4%-5% this year in spite of the challenging economic environment.

       However, net interest margin will likely soften in the medium term due to the repricing its products.

       This was noted by Kenanga Research, citing RHB Bank chief financial officer Nik Rizal Kamil Nik Ibrahim Kamil.

       “At present, the group’s loan growth guidance still appears to be intact. This is fuelled by demand for housing loans and auto financing, although likely to be set back by softer SME (small and medium enterprises) numbers as current economic conditions are not business friendly,” the brokerage said in a note.

       “Further applications-cum-economic reopening should help boost year-end performance when the national vaccination rate grows,” it added.

       Regionally, Kenanga Research said, RHB Bank’s Singapore operation is poised to perform better than Malaysia on the former’s more successful containment of Covid-19 while operations in other regions, such as Cambodia and Thailand, are expected to be moderate.

       It noted RHB Bank’s management is keeping its net interest margin or NIM guidance unchanged at 2.06% (ex-modification loss) for now.

       Meanwhile, it was still early days in the new opt-in moratorium, hence, the group was unable to guide on its anticipated take-up rate. Nevertheless, RHB Bank was confident that it would be lower than last year’s automatic blanket moratorium.

       RHB Bank’s modification loss due to the moratorium stood at RM418mil for the financial year ended Dec 31, 2020. The group expects the modification loss this round to be lower.

       The Bottom-40 segment, the group most impacted by the Covid-19 fallout, only made up 21% of RHB’s total retail loan books, which could not be too detrimental assuming full applications from here are made.

       The group’s targeted repayment assistance still stood at around 10% of total outstanding loans, as progressive graduations were offset by new applications, no thanks to the struggles from extended movement controls.

       Kenanga Research has maintained its “outperform” call on RHB Bank, with a target price of RM6.15. “At the time being, we believe RHB Bank still holds a resilient spot amidst macro uncertainties. It also serves as a prudent stock selection with its leading CET-1 ratio of around 16% which enables greater allowance to implement capital management strategies,” the brokerage explained.

       “While management has an aspired dividend payout ratio of 50%, we keep our expectations conservative at 35% which nevertheless will still able to garner yields close to 5%. As such, investors could possibly benefit from dividend surprises,” it added.

       RHB Bank’s shares were last traded at RM5.25, down one sen.

       According to Kenanga Research, RHB Bank’s credit cost would likely to be at the higher end of the management guidance of 30 to 40 basis points.

       “With recent developments and recognition needs triggered by the moratorium, it is likely that we could see further overlays to be imputed (currently at more than RM600mil) in the coming quarters and lead the bank to the tail-end of the range,” it said.

       “On the flipside, this could indicate high utilisation levels in the coming years should lockdown measures ease coupled with the reopening of the economy,” it added.