RHB Bank Berhard (RHB Bank) is a public limited company, based in Malaysia, and it offers commercial banking, international banking and corporate banking services. Its most important business is centred in the Kuala Lumpur Head Office. RHB Bank Berhard (RHB Bank) has a wide reaching financial network throughout Malaysia and relatively in the region. It's the third largest bank in the country, with over 200 branches around the country and the region such as Singapore, Thailand and Brunei(as of 2002). With correspondent banks in nearly 96 countries all over the world, RHB Bank has made its presence felt globally. The bank also boasts of 10,000 staff under its name. One of RHB Bank Berhard (RHB Bank) achievements was in 1997,when it had the prestigious honour of being the named Best Domestic Bank by Finance Asia and Euromoney.
History
RHB Bank Berhad (also known as the Rashid Hussein Bank) was formed in July 1 1997, when Kwong Yik Bank merged with Development and Commercial Bank(DCB Bank, formerly known as D&C Bank). Even though the bank seems to be relatively new its origins go back as far as the early 90s. Quite a number of substantial significant events have occurred to influence the banks current state as we know it today.
Kwong Yik Bank Berhad
Kwong Yik Bank Berhad was established in 1913 with a start-up capital of RM300,000 at the Old Market Square in Kuala Lumpur, making it Malaya's first local bank. In 1997 Kwong Yik Bank Berhad merged with DCB Bank Berhad making it the country's largest ever banking merger at the time. Rashid Hussain, Rashid Hussain Bhd(RHB) group founder, one of the most successful entrepreneurs in Malaysia, already had a commercial banking arm, Development and Commercial Bank (DCB) holding, but Development and Commercial Bank (DCB) chief business was located in corporate business. To tap into the consumer market DCB acquired a 75% in Kwong Yik Bank Berhad from the country's biggest commercial bank, state-controlled Maybank (Malayan Bank). The merger was also encouraged by the government as they wanted to increase competition in the financial sector, which in turn would bring down lending rates for Malaysian borrowers.
DCB Bank Berhad
Development and Commercial Bank (D&C Bank, later renamed DCB Bank) was established in 1966. In 1990 Rashid Hussain, through his company, Rashid Hussain Bhd(RHB) bought a 20% stake in Development and Commercial Bank(DCB). His stake grew until he had a controlling shares in Development and Commercial Bank. As stated above, DCB merged with with Kwong Yik Bank Berhad in 1997 ,giving birth to RHB Bank Berhad, turning a medium-sized bank into the third largest integrated financial services group in Malaysia.
To cover RM 2.6 billion asking price Rashid Hussain Bhd(RHB) sold 10% of its equity to a construction and property company Malaysian Resources Corporation Berhad (MRCB). The remaining amount was covered through RM 800 million in bond issues. The merger of the two banks resulted in combined assets of RM 32 billion. RHB Bank, was assigned an A2 short-term and BBB long-term stable ratings by Standard and Poor's, which confirmed the bank's sound financial position in 1997.
RHB Bank Berhad later joined forces with other banks and financial institutions to form the RHB Banking Group. Below is a short summary of significant events leading to RHB Banking Group as we know it today.
RHB Banking Group
1983 - Rashid Hussain secures a broker's licence and sets up Rashid Hussain Securities Sdn Bhd
1996 - Rashid Hussain acquires a 75% stake in Kwong Yik Bank Berhad
1997 - Merger of Kwong Yik Bank Berhad and DCB Bank Berhad to form RHB Bank, then Malaysia's third largest financial services group
1999 - Merger of Sime Bank Berhad and RHB Bank Berhad to form the RHB Banking Group
2003 - Merger of RHB Bank Berhad with Bank Utama Berhad into the RHB Banking Group
2005 - RHB Banking Group received a license for its Islamic Banking arm - RHB Islamic Bank Berhad
Today, the RHB Banking Group is majority owned by the Employees Provident Fund it offers the entire range of financial products and services, covering commercial banking, investment banking and insurance, as well as Islamic banking.
Current Information
Base Lending Rate(9 March 2010)
RHB banking group revised its base lending rate(BLR) per annum for RHB Bank Berhard from 5.55% per annum to 5.80% per annum, which was effective from March 9,2010.The move was in response to Bank Negara Malaysia's increase in the overnight policy rate (OPR) by 25 basis points to 2.25% .
RHB sues Rashid Hussain for RM1.4billion( 2005)
In 2005 founder of the RHB banking group, Rashid Hussain and five former executives were sued by Employees Provident Fund. The suit of RM1.4 billion was filed against the six by RHB Capital, RHB Securities Sdn Bhd and RHB Equities Sdn Bhd at the Kuala Lumpur High Court . The charges included breach of fiduciary duties, breach of trust,breach of contracts of employment/or negligence in relation to certain margin financial facilities granted by RHB Equities during their tenure as Directors and/or Officers of RHB capital, RHB Securities and RHB Equities. The suit was filed by major shareholder Utama Banking Group in 2005 and during the course of the trial evidence adduce seems to indicate a clear breach of fiduciary duties. Dubious huge loans for margin financing was given without any collateral and proper approval. RHB Group suffered the massive loss as a result of a share margin financing given to the five borrowers for the purchase of Omega Holdings Berhad shares in 1997. The proposed amount of loan and securities were undisclosed while the prescribed forms requesting for the various particulars were left blank.Despite the above discrepancies, the RM500 million loan, divided into RM100 million for the five directors, was approved and it raised the question of whether 'corporate governance' practice was observed.The loses came as a result of the decline in the omega shares. They were bought at Rm 6.45 and their market price was RM 11.50 when the loan was fully disbursed on 17/11/1997. They then fell to RM 6.95 before their trading was suspended on 18/12/1997. Approximately the same time,the following year the shares fell further to Rm 1.55. The litigation was however later discountinued against the six former executives, without any convicing explanations by the EPF.
Return On Assets, sometimes called return on investment is an indicator of how profitable a company is relative to its total assets. Its shows how efficient management is at using its assets to generate earnings. RHB's ROA ranges from 0.36% in 2005 steadily rising 1.11% in 2008. This shows that the bank is consistently increasing the return from their assets by about 0.25% annually. This is evidenced by their annually increasing total revenue, which rose from RM3.4 billion to over RM5 billion in 2008, showing that indeed the bank is profitable. Industry averages show that ROA for banks range around 2% to 3% for highly performing banks, therefore it shows that RHB is going in the right direction.
Loss Ratio = Net Charge offs / Total Loans
Charge off is the declaration by a creditor that an amount of debt is unlikely to be collected. In the case of banks, it is those loans that are defaulted and deemed bad that they will not be collected. These amounts are written off. Net Charge offs are loans written off as bad debts less recoveries collected from earlier charge offs. The higher the nonperforming loans and charge off percentages, the higher the provision for loan losses should be. This ultimately reduces the net income and earnings per share. RHB loss ratio is decreasing from 0.09 in 2005 to 0.04 in 2009 this shows a significant improvement in the performance of the bank this will in the loan run improve the net income of the bank
This measures the total loans outstanding as a percentage of total assets. The higher this ratio indicates a bank is loaned up and its liquidity is low. The higher the ratio, the more risky a bank maybe to higher defaults. RHB has seen a rising trend in this figure, from 50% in 2005 to 62.44% in 2008. This we feel however that is still within reasonable limits
Return on equity
This is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested
Return on Equity = Net Income/Shareholder's Equity
RHB return on equity shows an increasing trend from 6.6% to 14.9% in 2008.AN increasing margin can be viewed as a good sign because it means that RHB is increasing shareholders wealth. By relating earnings to shareholders equity an investor can quickly see how much profits are earned form each dollar invested in the firm stock, for instance for every dollar invested during year 2005 RM0.07 of asserts are created which increase to RM0.15 during year 2008.This shows a favourable to return to investors.
None-performing loans/total loans and advances
These are loans that are no longer producing income for the bank that owns them. Loans become non-performing when borrowers stop making payments and the loans enter default. Loans are considered to be none performing if they have been in default for 3 consecutive months. This ratio is reported as a measure of the quality of the banks outstanding loans. RHB none performing where very high during year 2005 this could be interpreted as poor loan collection measure. This high percentage of 9.4 decreased to 4.64% showing an improvement. A small ratio of 4.64 as compared to that of 2005 indicates smaller losses for the bank while a larger NPL ratio can mean larger losses for the bank as it writes off the bad loan.
NET PROFIT MARGIN
This net income divided by total revenues, it a measure of profitability. It measures how much out of every dollar of revenue the company actually keeps in earnings.
Looking at the profits of a bank often doesn't tell the entire story. Increased profits are good, but an increase does not mean that the profit margin of the bank is improving. If a bank has costs that have increased at a greater rate than revenue, it leads to a lower profit margin.
Looking at the net income of the bank, it clearly shows that earning of the bank has increased from 2005 through 2008, but this doesn't tell the entire story. There has been a steady increase of net profit margin through-out the four years, which is from 2005 to 2008. The bank records a massive 130.98% increase of net profit margin from 2005 till 2008.
This shows that the earnings that the bank keeps out of every dollar of revenue have actually increased over the years. It also illuminates that revenues have increased at a greater rate than expenses.
NET BANK OPERATING MARGIN
It is a profitability measure. It is computed as total operating revenue minus total operating expenses all divided by total assets of the bank. It indicates the net operating revenue that the company generates on the firms investments/assets.
From the table above it shows that total operating revenue have increased steadily over the years, 2005 till 2008 but total operating expenses have been fluctuating. In 2006, the total operating expenses increased such that the net operating revenue was -RM 8,604,583 000 and the total assets increased as well.2006, has registered the highest total assets compared to other years. The net bank operating margin in 2006 is -0.1001 which is the lowest compared to other years.
It shows that in 2006, the bank invested in more in projects which has high expenses and they actually generated less net operating revenue compared to total assets the bank has invested in.
The net bank operating margin in 2006 might be that the bank has ventured in to long-term investments with the aim of generating revenues in the following years. This is supported by the increase in operating revenues in 2007 and 2008 and the decrease in operating expenses in 2007 and 2008 implying that the bank bathed the expenses in 2006 so that it can have lower expenses in the following years.
It is also supported by the rapid increase of net bank operating margin from 2006 till 2008, which shows that the assets which the bank has invested into in 2006, has generated net operating revenue in the following years, thus 2007 and 2008.
PROVISION FOR LOAN LOSSES/EQUITY CAPITAL
This ratio is a credit risk measure; it measures how much of every dollar of the total equity capital the company provides as loan losses. It is computed as loan loss provision divided by total equity capital.
From the table above it shows that generally the provision for loan losses/ equity capital has decreased over the years. This shows that the credit risk of the bank it of loan losses provision has decreased over the years. However, 2006 records the highest provision for loan losses/equity capital ratio, this illuminates that the provision for loan losses has increased at a greater rate than the equity capital has increased from the previous year, hence a higher credit risk.
The bank records the lowest provision for loan losses/ equity capital ratio in 2008 indicating that the equity capital has increased at a greater rate than the loan loss provision has increased from the previous year.
In general the credit risk of the bank has decreased over the years, even though 2006 and 2007 records the highest and second highest credit risk in terms of loan losses provided for over equity capital respectively.
NET INTEREST MARGIN
This is a performance metric that examines how successful a firm's investment decisions are compared to its debt situations. A negative value denotes that the firm did not make an optimal decision, because interest expenses were greater than the amount of returns generated by investments.
For the year 2005, the net interest margin is 0.017. Since the value is not a negative one, it means that RHB bank on that year made good investment decisions compared to its debt situations. They made sure that their Investment returns are larger than their interest expense hence a positive net interest margin. From 2005, there was an upward trend in net interest margin which shows that RHB bank continued to make successful investment decisions.
EQUITY MULTIPLIER
An equity multiplier is a way of examining how a company uses debt to finance its assets. This is also known as the financial leverage ratio or leverage ratio. A higher equity multiplier indicates higher financial leverage, which means the company is relying more on debt to finance its assets.
In 2005, the equity multiplier was 18.14 and that increased up to 20.32 in 2007. That means that from 2005 until 2007, RHB bank increased its debt to finance its assets. However, in 2008, the equity multiplier dropped to 13.44 which is mainly due to the increase in equity capital and a decrease in total assets. From 2005 to 2006, the total assets increased dramatically while equity capital increased by a small percentage. That means in that period, the bank might have used more of its internal funds for acquiring more assets and less debt.
Earnings per Share
The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability.
Earnings per share of RHB bank increased from 6.9 sen to 16.5 sen in 2007 then dropped to 15.9 sen in 2008. Basically, it means that in 2005, every share held of RHB bank earned 6.9 sen. From 2005 to 2007, the increase in EPS was due to the rise in net income after taxes since the weighted common equity shares remained constant. For period of 2007 and 2008, although the decrease, both net income after taxes and weighted common equity shares increased but not very significantly.
ASSET UTILIZATION RATIO
This ratio measures how effectively the firm is using its assets to generate revenue. It shows the amount of revenue generated for every dollar's worth of assets.
IN the year 2005, asset utilization ratio was 0.045 and that increased up to 0.061 in 2008. The banks operating revenue had an upward trend while its total assets decreased in the year 2008. However, between 2007 and 2008, the total operating revenue increased by a small figure. That might have been due to the financial crisis that was present at that time.
LOAN ANALYSIS
Loan and advances are increasing from 37,090,808 in 2005 to 52,600,074 in 2008. From 2005 to 2006, there was a percentage increment of 26.39. From 2006 to 2007, loan and advances increased by 1.26 %. There was an increment of 10.81% from 2007 to 2008. That proves that loan and advances had an upward trend between 2005 to 2008. Loans and advances were at the peak in 2008. Assumption behind this is that the financial crisis impacted Malaysia during that year, so companies and consumers increased their borrowings to finance both their short term and long term deficit.
As for non performing loan, there was an 8.32% increment between 2005 to 2006, and a 35.38 decrement from 2006 to 2008.
Conclusion
RHB, aspiring to be one of the top 3 banks in ASEAN Region by 2020, we feel is certainly moving in the right direction. In the years of assessment from 2005 to 2008, it shows that the bank is growing and very steadily as well.
This is evidenced by the ROA and ROE both increasing from 0.36% to 1.11% and 6.6% to 14.9% respectively. This shows that the bank is able to provide a good return from efficiently managing their assets, and is able to give out a good return to investors for the capital they invested as well. The EPS has also increases considerably from 6.9sen to 15.9 sen, coupled with the Net Profit Margin which increased by 130% over the 4 years under review once again highlight the consistent growth that the bank is experiencing. This speaks volumes about the profitability of the bank.
On the other hand, it shows it is improving in managing their non performing loans and the non performing loans/total assets ratio decreased over time. This may be a sign that they invested in good credit collection mechanisms and other methods to improve the performances of loans. This is also supported by the decrease in loan loss ratio and hence the provision of such loans. Such a decrease suggests that the credit risk of the bank has decreased.
We reckon that the bank has performed quite well over the past few years and we believe the bank has prospects to continue to grow in the market and compete with the other bigger banks and ultimately see their vision through.
