Fitch IBCA Ratings - Press Releases - Fitch IBCA Assigns Rating to Malaysia's RHB Bank

Fitch IBCA Assigns Rating to Malaysia's RHB Bank

Fitch IBCA-London/Singapore-31 March 1999: Fitch IBCA, the international rating agency, today assigned an Individual rating of 'C/D' to Malaysia's RHB Bank, while maintaining the bank's Support rating of '2T'.

RHB Bank is the third largest in Malaysia and was created as a result of the merger between DCB Bank and Kwong Yik Bank on July 1st 1997. Fitch IBCA said that the merger made good commercial sense since it allowed RHB Bank to continue building on its corporate banking strengths, while expanding into consumer and retail banking, where Kwong Yik Bank was strong. The bank now has a better distribution in its lending base, which should lead to an improvement in interest margins. In addition, the agency said that it gained a more balanced and diversified deposit base. The merger with Sime Bank, scheduled for the second quarter of 1999, is expected to further enhance RHB's retail and commercial customer base and give it a small regional presence. Although the merger with Sime Bank is consuming valuable management effort at a time when the bank is facing asset quality problems, the benefit of acquiring Sime Bank's good assets and a related capital injection by Danamodal, the state bank recapitalisation agency, outweigh the negatives. The agency said that it is impressed with the bank's focussed strategy and the professionalism of the bank's management team.

Fitch IBCA said that RHB Bank's expansion has made it a more important player in the banking sector and has placed it in a better position to maintain sustainable growth. Over the longer term, cost savings and improved profitability ratios should be achievable through increased economies of scale and large investments in technology. In the shorter term, the agency expects RHB Bank to face a challenging time as asset quality deteriorates and its non-performing loans rise. However, the agency noted that RHB Bank's gross non-performing loans declined from 9% of loans at mid-1998 to 7% at year-end largely due to the sale of one third of its non-performing loans to Danaharta, the state agency set up for this purpose. Losses incurred as a result of the sale - MYR 380 mln or 14% of end-1998 equity - will be amortised over a five-year period and will depress future earnings. RHB Bank's non-performing loan ratio is expected to improve in 1999, possibly to less than 5%, when the good assets of Sime Bank are included in its books. Even without the sale of non-performing loans to Danaharta, RHB Bank's asset quality is better than average. The agency also expects RHB Bank's capital adequacy ratio, which was 14% at end-1998, to fall to about 11% when Sime Bank's assets are included. The agency's estimate was based on the presumption that part of the MYR1.5 bln injected into RHB Bank by Danamodal is converted into equity. Overall, the agency said that RHB Bank showed strong promise, particularly from its well-focussed and professional management team, but its overall financial condition is lower than that of Maybank and Public Bank.

Contact: Wei Kee Woods; Sam Chin, Singapore Tel: +65 221 3350

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