Voluntary exit scheme for staff could cost RHB RM332m

PETALING JAYA: RHB Capital Bhd’s voluntary exit option to all its permanent employees in Malaysia could cost the bank RM332 million but would save the group up to RM219 million each year moving forward.
Using CIMB Group Holdings Bhd as the benchmark, Maybank Investment Bank (MaybankIB) Research said “This would theoretically bolster FY16 earnings by about 8%.”

It was reported that RHB is looking to reduce its staff strength by 15% or about 2,700 via a career transition scheme (CTS), in an effort to cut costs.
This would represent about 15% of its total staff force of 18,000 and the compensation is expected to be 1.25 multiplied by basic salary.
RHB’s move follows in the footsteps of CIMB Group, which saw the rationalisation of 11.1% of its total workforce via a mutual separation scheme (MSS).
CIMB’s MSS involved a total of 3,599 personnel including 1,891 in Malaysia and 1,708 in Indonesia. This resulted in an MSS cost of RM443 million with expected savings from the headcount reduction of RM292 million per annum.
“Simplistically, if we were to use CIMB’s benchmarks, RHB could incur an MSS cost of about RM332 million, while savings could be about RM219 million per annum moving forward.
“That RHB needs to rationalise costs is evident in that its cost/income ratio (CIR) of 55.5% in 1H15 was high, compared against the industry average of 49%.
“Management has set itself a near term CIR target of <51%. We project a higher CIR of 57% for FY16. So, ceteris paribus, the cost savings from the CTS would take the ratio down to about 53%,” said MaybankIB.
The research house maintained its “hold” call and RM7.00 target price on RHB Capital, based on a price to book value target of 1 times on its post-rights book value of equity per share.
“We estimate a 1.3 percentage point enhancement in the group’s FY16 return of equity to 9.5% post-rights,” it added.