RHB Bank Bhd’s management has expressed optimism about the bank’s ability to reposition its portfolio and capitalize on market opportunities in the fourth quarter ending December 31, 2026 (4Q26), despite challenges faced in the third quarter. The bank encountered pressures on its non-interest income (NOII) during the third quarter due to a surge in Malaysian Government Securities (MGS) yields.
According to research by Hong Leong Investment Bank (HLIB), the elevated MGS yields have weighed on RHB’s 3Q26 NOII, primarily impacting trading income. However, the bank’s management appears more positive about the outlook for 4Q26, anticipating potential stabilization or retracement in MGS yields. HLIB has maintained a “hold” rating on RHB with a target price of RM8, reflecting a modest valuation and recognizing that most near-term catalysts have been priced into the shares.
HLIB noted that the third quarter’s weaker trading income was largely expected given the limited opportunities for recovery in the quarter, describing the impact more as the loss of trading upside rather than significant trading losses, especially in light of RHB’s relatively small trading book. The bank’s Treasury division has been strategically unwinding securities positions to crystallize gains and reduce risk exposure.
Despite the pressure on NOII, RHB’s return on equity (ROE) target range of 10.8% to 11% remains achievable, though likely toward the lower end. This is owing to a shift in emphasis toward core operations, supported by a loan growth target of 6% and cost growth management capped at 1%, which are expected to enhance operating leverage. Credit costs are tracking at the lower end of guidance, between 13 and 14 basis points, with management comfortable at 13 basis points and hopeful of reaching 12 basis points if recoveries improve.
On the fee income front, the bank’s wealth sales saw a 35% increase year-on-year as of June 2026, while bancassurance/takaful, brokerage, and loan-related fees also contributed positively, providing some offset to the NOII headwinds. Nevertheless, HLIB cautioned that these revenue streams are unlikely to fully compensate for the shortfall in trading income, making it more challenging for RHB to achieve the upper range of the ROE target amid the prevailing bond yield environment.
Capital management is set to be a key focus for the bank into 2027, with management targeting greater clarity on its capital and dividend policy by the first quarter of next year. Priority will be given to balancing operational funding and growth initiatives while maintaining Common Equity Tier 1 capital ratios at existing levels. If growth requirements can be accommodated without eroding surplus capital, the bank may consider returning excess capital to shareholders.
RHB’s dividend payout remains solid, with a projected dividend yield of 6.5% for the financial year ending December 31, 2027, underscoring its commitment to shareholder returns despite current market challenges.