Hong Leong Investment Bank (HLIB) has maintained its HOLD call on RHB Bank Bhd with an unchanged target price of RM8.00, saying the lender’s earnings outlook remains broadly stable despite pressure on non-interest income from the recent spike in Malaysian Government Securities (MGS) yields.
Following a recent meeting with RHB Bank’s management, HLIB said weaker trading income is likely to weigh on 3Q26 non-interest income (NOII), with limited time left in the quarter for market conditions to recover.
However, the research house said the impact should be viewed mainly as foregone trading upside rather than significant trading losses, given RHB’s relatively small trading book.
Management has also been tactically reducing securities exposure and crystallising gains where possible. HLIB said the outlook for 4Q26 is less negative, as RHB would have more time to reposition its portfolio should bond yields stabilise or decline.
Despite the NOII headwinds, RHB has retained its 10.8% to 11.0% return on equity target, although HLIB believes the group is now more likely to achieve the lower end of that range.
With securities trading becoming a less dependable earnings driver, greater reliance will fall on core operations.
Loan growth remains on track at around 6%, while management has reset cost growth guidance to 1% or below, potentially supporting better operating leverage.
Credit costs are also tracking near the lower end of RHB’s 13 to 14 basis point guidance, with management comfortable at around 13bps and seeing potential for around 12bps if recoveries materialise.
Other fee-based businesses are showing stronger momentum. Wealth sales increased 35% year-on-year as at June 2026, while bancassurance and takaful, brokerage, investment banking and loan-related fees have continued to improve.
HLIB said these areas should partially cushion the weaker trading contribution, although elevated bond yields have made the upper end of the ROE target more difficult to achieve.
HLIB said RHB’s asset quality outlook remains manageable, with management seeing no significant corporate credit concerns at present.
Gross impaired loan formation continues to come mainly from the SME and community banking segments, but the deterioration has been gradual rather than broad-based.
Potential recoveries could emerge from the corporate, commercial and Singapore portfolios, although management is not assuming substantial write-backs.
RHB is also maintaining underwriting discipline, remaining selective in mortgages and SME lending and avoiding aggressive pricing where risk-adjusted returns are unattractive.
Deposit competition remains manageable, while initiatives such as RHB Pay are aimed at capturing operating balances and structurally improving current and savings account deposits and funding costs.
HLIB said capital management remains one of RHB’s more important medium-term catalysts, with the bank targeting greater clarity on its capital and dividend policy by 1Q27.
A roughly 100-basis-point uplift in the CET1 ratio, equivalent to around RM2 billion, could potentially emerge following Basel III reforms in January 2028.
Management’s priority, however, remains ensuring that normal operations and targeted growth can be adequately funded while maintaining CET1 around current levels.
Any excess capital could potentially be returned to shareholders if future growth requirements do not absorb the surplus.
The stock currently offers a projected FY27 dividend yield of more than 6.5%, while a possible normalisation in the Overnight Policy Rate from 2.75% to 3.00% in 2027 could provide another earnings lever.
HLIB maintained its RM8.00 target price, based on an implied 1.0 times CY2027 price-to-book multiple, saying current valuations already reflect most near-term positives and that stronger catalysts are needed before it adopts a more constructive stance.
