KUALA LUMPUR (Aug 29): RHB Bank Bhd expects the interest margin (NIM) squeeze — the spread banks earn between borrowing and lending — to ease in the second half of the year (2HFY2023), driven by lower competition in the deposits space.

According to RHB's managing director and chief executive officer (CEO) Mohd Rashid Mohamad, the group is looking to improve NIM to 1.8-1.9% for the full year 2023, despite the increase in funding cost and expectation that NIM would continue to tighten in the near term.

NIM compression in 1Q was steeper than expected due to a pick-up in the deposit war between banks.

“We saw a contraction from 1Q to 2Q of our NIM. But the quantum of the reduction is smaller than what we have seen in 1QFY2023. I am of the view that the pressure on the NIM compression will be slightly lesser compared to the first half of the year.

“In fact, if you ask me, I can see that competition in the market from fixed deposits is a lot less compared to 1HFY2023. So we would think that we would be able to improve our NIM, but I would say it will not be as high as what we closed in FY2022,” he said at the group’s 1HFY2023 financial results briefing on Tuesday (Aug 29).

NIM for the quarter contracted to 1.82% from 1.9% in the preceding quarter, taking 1HFY2023 NIM to 1.85%, he added. “We will defend our retail and current account savings account (CASA) deposits. In terms of managing funding costs, we are looking at other alternative measures to fund our costs.”

Rashid said that RHB will be maintaining cost discipline and investing strategically in digital efficiency to manage persistent cost escalation due to inflationary pressure.

He said that given the expected economic expansion of 4.3% in 2H2023, RHB expects loan growth to be at 4% for the full year, against an earlier projection of 4-5%.

In 2QFY2023, RHB posted a 28% increase in net profit to RM808.70 million from RM630.07 million a year ago, driven by higher allowances for credit losses written back, partly offset by lower net funding income and higher operating expenses.

Quarterly revenue jumped 37.2% to RM4.05 billion from RM2.95 billion in 2QFY2022.

This led to earnings per share rising to 18.95 sen from 15.16 sen, its Bursa Malaysia filing on Tuesday showed.

Non-fund based income increased 46.3% to RM1.07 billion, primarily from higher net gain on forex and derivatives, and net trading and investment income.

Its operating expenses increased 6.5% to RM1.80 billion, partly due to higher personnel costs from collective agreement adjustments.

Correspondingly, cost-to-income ratio increased to 47.5% compared with 44.9% a year ago, the bank said.

Customer deposits increased 0.9% year-to-date to RM229.3 billion, mainly due to growth in retail and SME deposits of 9.8% with CASA composition standing at 27.6% while liquidity coverage ratio (LCR) remained sound at 136.7% as at June 30, 2023.

On RHB’s key performance units, its group community banking segment posted a 7.7% year-on-year (y-o-y) increase in pre-tax profit to RM1.02 billion mainly due to higher net fund based income.

Group wholesale banking posted a pre-tax profit of RM1.03 billion, a 37.5% increase y-o-y mainly due to higher non-fund based income and lower expected credit loss (ECL).

RHB Islamic Bank recorded a 6.1% y-o-y increase in pre-tax profit to RM548.4 million mainly due to higher non-fund based income and lower ECL.

RHB shares were up six sen or 1.06% to RM5.71, valuing the group at RM24.48 billion.

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