RHB Bank to complete sale of general insurance biz to Tokio Marine Asia by 1Q20

Discussions have already begun, while Tokio Marine Asia has started conducting due diligence on RHB Insurance

by NG MIN SHEN/ pic by RAZAK GHAZALI

RHB Bank Bhd hopes to complete the sale of its general insurance business to Tokio Marine Asia Pte Ltd by the first quarter of 2020 (1Q20) upon receiving the green light from Bank Negara Malaysia (BNM) last month to commence negotiations for the proposed disposal.

Group MD Datuk Khairussaleh Ramli (left) said discussions between the two parties have already begun, while Tokio Marine Asia has started conducting due diligence on RHB Insurance Bhd, the general insurance business.

“We hope to complete the discussions by end-October and make a submission to BNM within November. If all goes well, we can hopefully complete the deal by the end of 1Q20,” he told a media briefing on the bank’s latest financial results in Kuala Lumpur yesterday.

KAF-Seagroatt & Campbell Securities Sdn Bhd said RHB Insurance had a book value of RM574 million as at end-2018.

Malaysia’s fourth-largest banking group by assets had on July 31 received the central bank’s approval to begin talks with Tokio Marine Asia for a disposal of up to 94.7% of its interest in RHB Insurance.

The approval is valid for six months from the date of BNM’s letter dated July 29. Both parties are required to obtain approval from the minister of finance, with the recommendation of BNM, before entering into any definitive agreement to effect the proposal.

On whether the bank would pay out a special dividend from the proceeds of the disposal, Khairussaleh said this is “a bit premature for us to answer” as the valuation of the insurance unit is not yet known.

It was reported that Tokio Marine Holdings Inc, the Japan-based parent of Tokio Marine Asia, is considering buying RHB Insurance to boost its presence in the Malaysian market.

According to RHB Bank’s 2018 annual report, its insurance subsidiary is the 10th-largest insurer in the country with a 4.4% market share.

Khairussaleh said RHB Insurance typically contributes about 4% to 5% of the group’s overall profit before tax (PBT). The insurance unit’s PBT came in at RM70 million for the first half of 2019 (1H19), while the group’s total PBT amounted to RM1.66 billion.

Hong Leong Investment Bank Bhd, in a recent research note, said RHB Bank could register a disposal gain of up to RM800 million from the proposed sale, assuming a price-to-book ratio of 2.35 times — the historical average ratio for mergers and acquisitions involving Malaysian insurers.

It also said the proposed divestment is not a surprise, given that insurance is a non-core asset for the bank and talks of a sale have surfaced since 2015.

RHB Bank’s net profit rose 7.9% to RM615.41 million in 2Q19 from RM570.26 million recorded a year ago, helped by higher non-fund-based income and lower expected credit losses on loans.

The 2Q19 revenue was 12.1% higher year-on-year (YoY) at RM3.42 billion compared to RM3.05 billion registered the year prior.

For 1H19, the bank’s net profit climbed 7.3% to RM1.25 billion from RM1.16 billion the year before, attributed to higher non-fund-based income and lower expected credit losses for loans.

Gross loans and financing grew 6.9% YoY to RM172.3 billion, mainly driven by mortgages (up 11.6% YoY), loans to small and medium enterprises (up 6.7% YoY) and loans by its Singapore operations (up 11.2% YoY).

Domestic loans rose 6.6% YoY, with a market share of 9% as at end-June 2019. Customer deposits grew 10.9% to RM185 billion as at end-June 2019.

Its Islamic business saw gross financing growth of 22.2% YoY reaching RM56.1 billion. As at June this year, Islamic financing constituted 36% of total domestic gross loans and financing, up from 31.4% a year ago.

The group’s gross impaired loans ratio improved to 2.15% from 2.33% a year ago, although the end-June 2019 ratio was higher than 2.06% as at end-December 2018. Gross impaired loans stood at RM3.7 billion at the end of 1H19.

Net interest margin (NIM) stood at 2.11% for 1H19 compared to 2.24% as at end-2018, attributed mostly to the cut in the Overnight Policy Rate (OPR) in May this year.

“Our forecast NIM for the year is around 2.11% to 2.13%,” Khairussaleh said. He said a second OPR cut would result in further compression of net interest income, but the impact would be manageable as fixed-rate loans only comprise about 14% to 15% of the group’s loan book.

Gross fund-based income climbed 7.4% YoY in 1H19, driven by loan growth and marginally negated by the impact of the OPR reduction.

Funding and interest expense increased 16.4% YoY due to the impact of the OPR hike in January last year, coupled with a higher deposit base. As a result, net fund-based income declined 2.6% YoY.

Non-fund-based income jumped 21.8% YoY to RM1.1 billion, contributed mostly by higher net trading and investment income, insurance underwriting surplus and higher capital market-related fee income.

Operating expenses climbed 2.7% YoY to RM1.71 billion on higher personnel cost, information technology- related expenses and marketing expenses, although the group’s cost-to-income ratio improved to 48.5% from 49.1% last year.

Khairussaleh said the bank is maintaining its targets of achieving a 5% loan growth for the financial year ending Dec 31, 2019 (FY19), and beating its highest-ever earnings recorded in FY18.

Shares of RHB Bank closed 0.9% higher at RM5.62 yesterday, valuing the group at RM22.54 billion.