KUALA LUMPUR (May 30): RHB Bank Bhd, the country’s fourth largest bank by asset size, is eyeing to boost its return on equity (ROE) to 11.5% by 2024 from 9.6% currently, under its three-year corporate strategy (2022-2024), also known as Together We Progress 24 (TWP24).

“Under TWP, one of the focus areas is to integrate our overseas business. For Singapore, we will focus on commercial and corporate banking businesses. Another country we want to focus on is Cambodia, the retail business [there],” RHB Banking group managing director and chief executive officer Mohd Rashid Mohamad told the press after the strategy launch.

Currently, international operations account for about 10% of RHB’s profit — and Singapore contributes more than half of that — while home operations contributed 90% of the group’s bottom-line.

Some of the key targets that have been set under TWP24 include cost-to-income ratio of 44.5% — from 45.2% as at end 2021 — as well as non-financial targets relating to digital, IT, analytics. Sustainability targets include mobilising RM20 billion in sustainable financial services and a financial inclusion target of empowering two million people by 2026 and for the group to become carbon neutral by 2030.

Rashid said TWP24's strategy sets the tone and establishes the direction towards achieving the group’s aspirations of becoming the best service bank in the country with stronger emphasis on digital innovation through new and enhanced products and services, improved business processes and enhanced workforce performance.

“In addition, we continue to place much emphasis on the integration of environment, social and governance considerations within our business and decision-making process as well as driving responsible business growth, guided by our five-year (2022-2026) sustainability strategy,” he added.

Meanwhile, Rashid expects the group’s loan growth to expand between 4% and 5% in the financial year ending Dec 31, 2022 (FY22), compared to last year's 6.7%.

He said the slower loan growth projections were made after taking into account risks such as rising inflation and the overnight policy rate (OPR) hike into consideration.

Earlier this month, Bank Negara Malaysia raised the OPR by 25 basis points to 2% after keeping the rate at a record low of 1.75% since July 2020.

Going forward, Rashid warned that the bank may see an uptick in its gross impaired loans (GIL) among the retail and small-medium enterprise (SME) segments.

"We cannot discount the possibility (on the uptick for GIL) on the SME and retail spaces. Despite the market having normalised, the GIL ratio for the group is still lower than pre-pandemic. But, we are monitoring that closely, because some of the (financial support) packages just ended," he noted.

RHB Bank's GIL stood at RM3 billion as at March 31, 2022, with the GIL ratio at 1.50%, as opposed to RM3.1 billion and 1.66%, respectively, a year ago.

It should be noted that the bank saw an improvement in its GIL ratio from 2.16% in 2018, to 1.97% in 2019, 1.71% in 2020 and 1.49% in 2021 — with the latter two years supported by financial support programmes, including blanket loan moratorium and targeted repayment assistance that was aimed at supporting affected lenders that were badly hit by the Covid-19 pandemic.

RHB Bank's net profit for the first quarter ended March 31, 2022 (1QFY22) fell 7.69% year-on-year (y-o-y) to RM600.27 million from RM650.63 million, no thanks to higher taxes — which was up 35% y-o-y to RM289.3 million — and lower net income.

Stripping out the impact of the higher taxes, the banking group reported a pre-tax profit of RM890.6 million, which is 3.1% higher than the RM864 million recorded a year ago. The y-o-y pre-tax profit improvement was mainly due to higher net funding income, lower modification loss, lower operating expenses, and lower allowances for credit losses — offset by lower non-fund based income.

RHB's tax and zakat expenses rose 36% y-o-y to RM289.3 million from RM213.3 million a year earlier. Companies with a chargeable income above RM100 million for the year of assessment 2022 are taxed a one-off ‘prosperity tax’ rate of 33% instead of the blanket 24% previously.

Meanwhile, net income slipped 1.01% to RM1.9 billion from RM1.92 billion, due to lower Islamic banking income on higher expenses, and as net interest margin slipped to 2.11% from 2.17% which affected net interest income.

RHB’s share price dipped four sen or 0.7% to RM5.91 on Monday, giving the group a market capitalisation of RM24.4 billion.