RHB Singapore's O&G exposure still 'manageable'

O&G loans currently account for 3.6% of total loans.

Maybank Kim Eng analysts think that RHB’s Singapore O&G exposure is manageable and positively, management does not envisage any capital raising post MFRS9.

"Credit cost is a wild card – every 50bp reduction in our estimates would raise earnings by 2.8%. Our FY18/FY19 earnings forecasts are marginally raised by 2% to factor in higher non-interest income."

Here's more from Maybank Kim Eng:

O&G loans currently account for 3.6% of total loans, for which the gross impaired loan (GIL) ratio is about 10%, with a loan loss coverage (LLC) of 25%. The concern lies primarily with the group’s O&G exposure in Singapore (15% of total O&G loans), but we believe the risk is contained.

Assuming the GIL on the Singapore O&G book doubles and the aggregate LLC is 60% (corresponding to the LLC on its steel portfolio), RHB would have to set aside additional provisions of MYR135m, which is a manageable 6% impact to FY17 earnings.