RHB sees slower loan growth in 2009

Malaysia's banking system has not been directly affected by the US subprime mortgage crisis as local banks have little exposure to risky mortgage-related securities and troubled financial institutions in other countries.

But the Southeast Asian country will not escape the impact of a marked slowdown in the global economy given its heavy reliance on exports.

The Malaysian economy will grow 3.5 per cent next year, the slowest pace since 2001, down from a projected 5.4 per cent this year, according to government forecasts.

"A sharp slowdown in the domestic economy would provide lesser lending opportunities, as well as risks of rising delinquencies," said RHB Bank group managing director Michael Barrett.
"Given that businesses are facing tougher times ahead and a lot of them are hit by the double whammy of declining demand and higher costs or lower margins, tight cash flow may result in certain companies unable to meet their debt obligations," he said in an e-mailed reply to Reuters questions.

The bank has not yet finalised its 2009 loan growth and non-performing loan (NPL) ratio targets.

Some analysts say that RHB Bank, controlled by the Employees Provident Fund (EPF), is vulnerable to an economic slowdown due to its heavy exposure to the Malaysian corporate sector.

Loans to local companies account for about half of RHB Bank's total loan book, company data showed.

The bank is the second most active corporate lender after CIMB Bank, based on its exposure to the top 20 most-geared companies on the local bourse, according to BNP Paribas Research.

RHB is also the principal banker to capital-intensive companies such as budget carrier AirAsia Bhd, retail-to-steel conglomerate Lion Corp and construction firm UEM Builders Bhd, the brokerage said.

RHB's non-performing loan ratio could trend upwards and possibly double next year, Macquarie Research said in a recent research note. Macquarie said RHB's gross NPL ratio was 5.36 per cent in 2007.

RHB reported a net NPL ratio of 2.75 per cent at end-June, down from 3.43 per cent at end 2007.

Although RHB Bank has not suffered massive losses from the global credit crisis like many of its Western peers, the extreme volatility that has ripped through global financial markets in recent months is taking a toll on the bank's capital market operations, which include selling stocks, bonds and investment products.

"The global financial crisis has affected the performance and activities in the capital markets. This is expected to result in lower income from stockbroking, bond market, unit trust and investment bank," said Barrett.

"Another risk would come from mark-to-market and or impairment of bank's investment portfolio," he added, referring to investments that could possibly turn sour.

But Barrett said he sees business opportunities arising from the high volatility in the currency market. - Reuters