KUALA LUMPUR: RHB Capital Bhd (RHB Cap) showed a marginal growth in profits, partly due to some significant reclassification of its securities held-for-trading and also higher net interest income.

The banking group yesterday announced a net profit of RM228.64 million which is marginally higher than the RM222.42 million a year earlier. This was achieved on the back of lower revenue of RM1.35 billion compared with RM1.5 billion a year earlier. Earnings per share was 10.6 sen versus 10.3 sen.

Interestingly, the balance sheet showed some marked movements where a portion of its securities held-for-trading were reclassified to securities available-for-sale or held-to-maturity. This is allowed under the Revised BNM/GP8 guidelines, effective July 1, 2008 to Dec 31, 2009, that allow banks a one-time movement of their securities.

According to RHB Cap’s balance sheet as at March 31, 2009, securities held-for-trading dropped to RM1.2 billion from RM5.3 billion as at Dec 31, 2008. Securities available-for-sale increased to RM9.9 billion (from RM6.2 billion as at Dec 31, 2008) while securities held-to-maturity rose to RM10.1 billion (from RM9.6 billion as at Dec 31, 2008).

In tandem with the reclassification of securities, RHB Cap in its changes to the equity statement registered an unrealised net loss of RM72.2 million on revaluation of securities available-for-sale. This amount is, however, in the balance sheet and will not reflect on the income statement.

Effectively, as a result of the reclassification of its securities held-for-trading, the bank did not record any net gain or loss arising from changes in the fair value of the securities in its profit and loss statement.

In a statement to Bursa Malaysia, RHB Cap said: “The higher profit was mainly due to increased net interest income by RM43.2 million, impairment loss no longer required of RM20.1 million and higher income from Islamic banking business by RM4.4 million.”

This was partly offset by other operating income coming in lower by RM30.2 million, higher allowance for losses on loans and financing by RM22.8 million, and higher other operating expenses by RM10.3 million, it said.

RHB Cap said RHB Bank Bhd continued to be the group’s most significant contributor, registering a pre-tax profit of RM317 million, up 26% from the previous corresponding period.

RHB Bank’s risk-weighted capital-adequacy ratio (RWCR) stood at 13.03% and core capital ratio at 9.12% as at March 31, 2009.

Meanwhile, RHB Investment Bank Bhd recorded a profit before taxation of RM18.5 million, 39% lower than a year earlier.

The loan loss allowance was higher by 15%, or RM22.8 million, to RM174.9 million as a result of further pre-emptive specific provision made during the period under review in the light of weaker economic conditions.

Nevertheless, the group’s net non-performing loan (NPL) ratio was marginally higher at 2.57% as at March 31, 2009 compared to 2.24% as at Dec 31, 2008.

“Other than some moderation in the mortgage, hire purchase and credit card segments, there are no major signs of deterioration in the group’s asset quality and the group remains confident of its overall portfolio,” it noted.

“Loan loss coverage remained high at 85% as at March 31,  2009, lower than the 90% as at Dec 31, 2008 due mainly to an increase in non-performing loans by RM264.5 million to RM3.1 billion as at March 31, 2009 and contraction in loan base by RM389.7 million to RM62.8 billion,” it added.

On the outlook for the banking sector, RHB Cap said despite the slowing economy, banks would remain resilient because of their strong capitalisation, good asset quality management and robust risk management practices.

On the stimulus packages and reduction in interest rates, RHB Cap said it was optimistic there would be continued loan growth and demand for existing and new banking products and services, albeit at a slower rate.

However, it was bracing for keen competition among the various industry players and coupled with lower interest rates and demand for loans and advances, it expected further pressure on net interest margins.

The stock closed yesterday at RM4.12, down two sen. It had touched its six-month high of RM4.24 on May 8.

This article appeared in The Edge Financial Daily, May 20, 2009.