This article first appeared in The Edge Financial Daily on August 27, 2019

KUALA LUMPUR: RHB Bank Bhd group managing director and chief executive officer Datuk Khairussaleh Ramli is “cautiously optimistic” that the bank could beat its financial year 2018 net profit figures on the back of non-interest income, particularly from investment and trading, adding that the bank also has a “nice portfolio of fixed income” that it could monetise.

Khairussaleh noted that earnings would be helped by continuous cost management as well as lower provision and expected credit losses (ECL).

While loans are growing faster, Khairussaleh said the net interest margin (NIM) dropped to 2.11% in the first six months ended June 30, 2019 (1HFY19), due to the overnight policy rate (OPR) cut in May. In comparison, NIM was at 2.24% for FY18.

RHB Bank’s net profit grew 7.92% to RM615.41 million in the second quarter ended June 30, 2019 (2QFY19) from RM570.26 million a year earlier on higher non-fund based income and lower ECL on loans.

Quarterly revenue was up 12% to RM3.42 billion against RM3.05 billion a year ago.

Net interest income declined nearly 6% to RM880.88 million, from RM936.93 million in the same period last year.

The banking group declared an interim dividend of 12.5 sen per share for FY19, which represents a 40.2% payout ratio. The payment date for the interim dividend will be determined later.

For 1HFY19, it said cumulative net profit expanded to RM1.25 billion from RM1.16 billion a year earlier.

Going forward, he noted that the bank is anticipating the OPR to remain at 3% for the remaining of 2019, although he says that there is risk of another cut.

“In the event of the OPR cut, net interest income will be affected. And … assuming that there is an OPR cut towards the end of this year, the margin compression will not be fully felt this year as there will be a lag effect,” said Khairussaleh.

Nonetheless, Khairussaleh maintains its NIM projection of between 2.11% and 2.13% for FY19.