RHB Bank Bhd managing director Mohd Rashid Mohamad said net interest margin may come in at 1.8-1.9% in the financial year ending Dec 31, 2024 (FY2024) versus the 1.82% achieved last year. (Photo by Sam Fong/The Edge)

KUALA LUMPUR (Feb 27): RHB Bank Bhd, Malaysia’s fourth-largest bank by assets, said on Tuesday net interest margin may remain steady this year but flagged pressure from higher funding costs and slowing loan growth.

Net interest margin, a measure of profitability from lending, may come in at 1.8-1.9% in the financial year ending Dec 31, 2024 (FY2024) versus the 1.82% achieved last year, said managing director Mohd Rashid Mohamad. Gross loans are likely to grow by 4.5%, a tad lower than FY2023's 4.8%, he said.

“There are uncertainties, yes, I think there are a couple of risk factors that we need to consider going into 2024,” he told reporters at an earnings briefing. Singapore would be the main country RHB is targeting for loan growth, he noted.

In Malaysia, a pickup in economic growth in 2024 would “help us in terms of building up our SME customers and also micro-SMEs,” he said.

For the full-year of 2023, net profit was 4.8% higher at RM2.81 billion against RM2.68 billion in 2022. Net interest income was 15% lower at RM3.56 billion, hurt by higher funding costs mainly due to fixed deposit growth.

Non-interest income was up 16% to RM1.84 billion thanks to higher net gain on foreign exchange and derivatives, net trading and investment income and fee income. Allowance for credit losses was lower at RM301.53 million with writeback of management overlay and expected credit loss on other assets.

Cost-to-income ratio was 47.5%. Gross loans and financing grew 4.8% while customer deposits increased 7.9%.

Rashid said there was also a contraction in current-account-saving-account (CASA) ratio across the industry during the final quarter of FY2023 as depositors prefer fixed deposit (FD) that pays higher interests.

“People are moving away from CASA and putting [deposits] in FD, and it requires a higher funding cost from all banks,” he said.

Still, Rashid said there appears to be some signs of stabilisation going into 2024, and the lender may raise borrowings in foreign currency and swap it for ringgit for its funding needs to cushion the impact.

For FY2023, RHB reported that CASA ratio dropped to 27.9% from 29.2% in FY2022 and 30% in FY2021.

RHB still has about 40% of its management overlays outstanding amounting to over RM300 million, Rashid said.

“We are monitoring and managing” uptick in provisions on its overseas operations and the small-to-medium enterprise (SME) segment, he said. “Most of our exposure to these business segments are all collateralised."

For FY2023, RHB’s return on equity (ROE) was 9.5%, versus its target of over 10%, lower than the 9.7% recorded in FY2022 and 9.6% in FY2021.

Asked if management would revise the 11.5% ROE targeted for FY2024, one of the aims under the group’s mid-term strategy “Together We Progress 2024 [TWP24]”, Rashid said the bank needs “to work harder for 2024” to narrow the gap with the target.

“We should look at this after the first half of the year,” he said, when asked whether there will be any revision to targets made under TWP24.

Among the other targets under TWP24 is a cost-to-income ratio of 44.5% by FY2024, which RHB achieved 47.5% in FY2023, up from 44.7% in FY2022 and 45.2% in FY2021.

“We will continue to refine our focus and approach, and double down on innovation and cost management to improve business performance,” he added.