Analysts from MIDF Amanah Investment Bank Bhd (MIDF Research) and Maybank Investment Bank Bhd (Maybank IB) have downgraded RHB Bank Bhd's stock call to either NEUTRAL and HOLD from BUY following the release of its third quarter financial year of 2024 (3QFY24) results where the financial institution reported a core net profit of RM2.28 billion. Despite a strong quarterly performance, both research houses cited limited upside potential after recent share price movements. As such, both MIDF Research and Maybank IB maintained their target price for RHB Bank in the range of between RM6.60 and RM6.80.

For the nine months ended September 2024, RHB Bank's core net profit of RM2.28 billion was within both analysts' and the market's expectations. This marks a 3% year-on-year increase, driven by a robust net income expansion of 11.3%. However, an increase in credit costs and a contraction in loan growth have dampened the bank's performance. RHB Bank's loan growth of 3.7% year-on-year, adjusted for forex impacts, was below its management's target of 6.5%-7%. Furthermore, its net interest margin (NIM) of 1.87% was at the lower end of its forecast range, with analysts noting that this could limit the bank's ability to capitalise on future growth opportunities.

MIDF Research pointed out the positive elements in RHB Bank's performance, including strong non-interest income (NOII) growth, particularly in fees, forex gains and trading income. They also highlighted the improvement in NIM, which rose by five basis points year-to-date, benefitting from effective liability management. However, MIDF Research also warned that the growth in NOII may not be sustainable and downgraded the stock due to the strong performance already being priced in. The analysts expect a potential downside of 2.4% from the current share price.

Maybank IB echoed a similar sentiment, noting that RHB Bank's 3Q24 core net profit growth of 15% quarter-on-quarter, driven by strong income growth and lower provisions, was offset by a higher operating cost and rising credit costs. While the bank maintained a healthy dividend yield of approximately 6%, Maybank IB raised concerns about the sustainability of the loan growth and NIM improvement. Furthermore, Maybank IB noted that RHB Bank's loan loss coverage ratio of 71% was relatively low compared to industry standards, which could pose risks in managing future credit losses.

Despite these challenges, both analysts acknowledged RHB Bank's strong capital position, with its CET1 ratio standing at 16.6% as of September 2024. This solid capital base would cushion the potential impact of regulatory changes under Basel III, which is expected to slightly reduce RHB Bank's capital ratios by 70-80 basis points. However, analysts maintain that the bank's high level of capitalisation offers a buffer against any significant operational risks.