What is Growth Strategy and Future Prospects of RHB Bank Company?

What is RHB Bank's Growth Strategy and Future Prospects?

RHB Bank Berhad, a major financial services group in Malaysia, has launched its new three-year strategic roadmap, 'PROGRESS27' (2025-2027). This plan focuses on boosting profitability, improving customer service, and creating lasting value through innovation and expansion.

The bank's history dates back to 1913, evolving through mergers into a leading financial institution. Its current strategy aims to leverage technology and strategic expansion for future success.

RHB Bank's 'PROGRESS27' roadmap is designed to enhance its market position and profitability. Key initiatives include digital transformation and expanding its RHB Bank BCG Matrix analysis to identify growth opportunities. The bank aims to achieve a return on equity of over 12% by 2027, with a target of increasing its fee and commission income by 15% annually.

RHB Bank's growth strategy is strongly aligned with its PROGRESS27 roadmap, focusing on both geographic expansion and deepening product offerings. The bank is actively pursuing international growth, with a particular emphasis on Singapore as a key regional hub for its ASEAN operations.

International Expansion Focus

Singapore is a critical growth engine for RHB's international business, contributing approximately 80% of its international income in 2024. The bank saw a significant profit before tax increase in Singapore, nearly doubling to $98.7 million in 2024, a 95.6% rise year-on-year.

Deepening Sectoral Support in Singapore

RHB plans to enhance its support for key sectors in Singapore, including healthcare and construction. The bank also aims to increase cross-selling opportunities within the country, especially targeting corporate investment banking clients.

Domestic Growth Corridors

Domestically, RHB is targeting economic corridors beyond Johor, specifically focusing on growth opportunities in Sarawak and Penang. This strategic approach aims to capture new market segments and drive revenue growth.

Targeting High-Yielding Segments

The bank's strategy involves outperforming market growth by concentrating on high-yielding segments. This includes a strong focus on mid-sized companies, community banking, mortgages, auto finance, and SME products.

RHB is actively engaging with over 1,000 SMEs nationwide as of December 2024, promoting sustainable practices and offering tailored financial solutions as part of its customer acquisition strategy.

Sustainable Finance Expansion

RHB is significantly expanding its commitment to sustainable financial services, raising its target to RM90 billion by 2027, a substantial increase from the previous RM50 billion by 2026 goal. This demonstrates a clear focus on integrating environmental, social, and governance (ESG) principles into its business model.

• Launched Malaysia's first Low Carbon Transition Facility (LCTF) Portfolio Guarantee.
• Introduced a RM1 billion Sustainable Trade Finance Programme/-i to support green initiatives and renewable energy projects.
• Mobilized over RM40 billion in sustainable finance by December 2024, surpassing its initial target ahead of schedule.
• Aims to increase its Current Account and Savings Account (CASA) ratio to over 30% by 2027, targeting SMEs and commercial clients alongside retail segments.

These initiatives underscore RHB Bank's commitment to its Mission, Vision & Core Values of RHB Bank and its forward-looking business strategy, positioning it for sustained revenue growth drivers and a strong RHB Bank financial outlook.

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The bank is committed to leveraging technology and innovation to foster sustained growth, allocating between RM700 million and RM900 million over the next three years for IT modernization and automation as part of its PROGRESS27 roadmap.

IT Modernization Investment

A significant capital expenditure of RM700 million to RM900 million is earmarked for IT modernization and automation over the next three years.

AI and RPA Integration

The bank is actively incorporating Artificial Intelligence (AI) and Robotics Process Automation (RPA) into its operations for enhanced efficiency and customer engagement.

AI Applications

AI is being utilized for collections, data analytics, and personalizing customer experiences, reflecting a forward-thinking approach to banking services.

Workforce Reskilling

The bank is investing in AI training for its employees to ensure the workforce remains competitive and adept at utilizing new technologies.

RPA Efficiency Gains

The Intelligence Process Automation team achieved 29 new RPA implementations in 2024, resulting in savings or avoidance of 46 FTEs.

RPA System Performance

The RPA system demonstrates high reliability with a 99.96% uptime and a 64.44% utilization rate, with solutions delivered in an average of two months.

Digital Ecosystem Enhancement

The bank is enhancing its digital capabilities to provide faster and more accessible financial experiences, focusing on streamlining customer journeys for products like mortgages and auto loans.

• Creating a digitally enabled ecosystem connecting developers, agents, and dealers.
• Utilizing the mobile banking platform for core banking functions, communication, and sales.
• Recognized with the Malaysia Technology Excellence Awards 2025 for Automation in Banking.
• Integrating technology into sustainability initiatives with new ESG-linked financing solutions.
• The bank's overall Target Market of RHB Bank benefits from these advancements.

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RHB Bank's financial trajectory indicates a period of sustained growth, building on its performance in FY2024. The bank is strategically positioning itself for continued expansion and profitability in the coming years.

Loan Growth Projections

RHB Bank initially projected loan growth between 6% and 7% for FY2025. However, this guidance has been adjusted to 5%-6%, reflecting a more conservative outlook on GDP growth.

Profitability Metrics

The bank reported a net profit of RM3.12 billion for FY2024, an increase from RM2.81 billion in FY2023. For the first quarter of 2025, net profit rose to RM750.03 million, up 2.7% year-on-year.

Strategic Financial Targets

Under its PROGRESS27 roadmap, RHB aims for a Return on Equity (ROE) of 10.4%-10.8% in FY2025, targeting 12% by 2027. The Net Interest Margin (NIM) is expected to remain stable.

Operational Efficiency and Deposits

The cost-to-income ratio (CIR) improved to 46.7% in FY24, with plans to lower it below 44.8% by 2027. Customer deposits reached RM249 billion, with a focus on increasing the CASA ratio to over 30% by 2027.

RHB's gross loans saw a 6.9% year-on-year increase to RM238 billion in FY24, reaching RM239.2 billion by March 31, 2025. Domestic loan growth of 4.7% outpaced the industry average of 4.3%. The bank's commitment to shareholder returns is evident in its FY24 dividend of 43 sen per share, representing a 60.1% payout ratio. Analysts generally hold positive views, citing solid fundamentals and attractive dividend yields, contributing to its strong Revenue Streams & Business Model of RHB Bank.

FY25 Loan Growth Guidance

Revised to 5%-6%, reflecting updated economic forecasts.

FY24 Net Profit

Achieved RM3.12 billion, an increase from RM2.81 billion in FY2023.

FY25 ROE Target

Aimed at 10.4%-10.8%, with a long-term goal of 12% by 2027.

FY24 Cost-to-Income Ratio

Improved to 46.7%, with a target reduction to below 44.8% by 2027.

Gross Loan Growth (FY24)

Recorded a 6.9% increase, reaching RM238 billion.

CASA Ratio Goal

Targeting over 30% by 2027, up from 28% in 1Q25.

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RHB Bank's ambitious growth strategy faces several potential risks and obstacles that could impact its future prospects. Intense market competition, particularly from larger institutions, and the ongoing challenge of increasing its Current Account Savings Account (CASA) ratio are significant hurdles.

Market Competition

RHB Bank, as a mid-sized player, contends with larger competitors who possess greater scale. This dynamic intensifies the race for market share and customer acquisition.

CASA Ratio Improvement

The bank's objective to boost its CASA ratio is challenged by widespread competition for these crucial, low-cost deposits across the banking sector.

Macroeconomic Uncertainties

Slower GDP growth projections, revised to 4.5% for Malaysia, have prompted RHB to adjust its loan growth guidance downwards. Global trade tensions also pose a threat to economic stability.

Credit Risk Management

While RHB maintained a strong gross impaired loans (GIL) ratio of 1.50% as of March 31, 2025, the target to keep it below 1.3% by 2027 requires continuous vigilance. An increase in impaired loans could negatively impact financial performance.

Non-Interest Income (NOII)

Muted growth in non-interest income is a key consideration for analysts assessing the bank's overall financial health and revenue diversification.

Operational Challenges

Despite significant investments in technology and AI, managing the cost base and ensuring seamless integration of these advancements present ongoing operational hurdles for RHB.

RHB's PROGRESS27 strategy is designed for agility, but external factors like tariffs and trade wars could still affect its trajectory. The bank is proactively managing credit risks by engaging with potentially impacted borrowers, especially SMEs, and reinforcing restructuring and rescheduling efforts. Internally, the focus on cost optimization and waste reduction is crucial for navigating resource constraints and enhancing operational efficiency, aligning with its broader Brief History of RHB Bank.

Regulatory and Economic Headwinds

Revised GDP growth forecasts and global trade disputes create an uncertain economic climate. Potential policy responses, such as adjustments to statutory reserve requirements or interest rates, could influence the bank's operating environment.

Asset Quality Maintenance

Sustaining a low gross impaired loans (GIL) ratio below 1.3% by 2027 is a key objective. Proactive engagement with borrowers and robust restructuring initiatives are vital for mitigating credit deterioration.

Technological Integration and Cost Management

The successful implementation of AI and other technologies requires careful cost management. Ensuring these investments translate into improved operational efficiency is a critical challenge for RHB's business strategy.

SME Exposure Management

RHB's focus on supporting SMEs means it must actively manage potential credit risks within this segment. Early intervention through restructuring and rescheduling is a key component of its risk management approach.

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