RCE Capital impairments to stay above RM30mil as civil servant bankruptcies rise
CIMB Securities said while there are initial signs of moderation in impairment provisions, "management cautions it is too early to call a normalisation trend", adding that impairments in FY26 are likely to remain well above historical averages.
The group's impairment losses surged to RM15 million in the fourth quarter ended March 31, 2025 (4QFY25), up 79.2 per cent quarter-on-quarter, bringing total impairment losses for the year sharply higher.
The spike was attributed to increased financing disbursements, updated macro assumptions, and scam-related impairments linked to the Malaysian Anti-Corruption Commission's "Op Sky" investigation.
The probe uncovered a syndicate that allegedly helped blacklisted civil servants obtain loans using forged documents. As of May 27, about RM1.96 million, or 0.1 per cent of RCE's financing portfolio, was identified as exposed and has been fully impaired.
Adding to the pressure is the government's "second chance policy", which allows individuals to voluntarily declare bankruptcy in exchange for financial rehabilitation. Impairments related to bankruptcy jumped 115.2 per cent year-on-year in FY25.
Consequently, CIMB Securities said RCE's non-performing financing (NPF) rose to RM95.5 million in 4QFY25, up 14.7 per cent from a year earlier, lifting its NPF ratio to 4.6 per cent, above its historical range.
The firm has revised down its earnings forecasts for RCE by up to 6.1 per cent for FY26 to FY28 and lowered its dividend discount model-based target price to RM1 from RM1.23. The brokerage reiterated a "reduce" call on the stock.
RCE has begun phasing out the use of the Accountant General's Department (AGD) as a salary deduction intermediary due to less favourable commercial terms, including a newly imposed five per cent profit rate cap on personal financing.
Instead, the group will channel all new disbursements through its subsidiaries, Corewealth Alliance Dynamic Sdn Bhd and RCE Marketing Sdn Bhd, both of which use Angkasa's payroll deduction platform.
"This transition enables RCE to retain a secure and efficient collection channel while redirecting some cost savings that were previously incurred as AGD's upfront fee.
"It allows more flexible product offerings, such as competitive profit rates, cash rebates or value-added features," said CIMB Securities.
RCE closed at RM1.18 on Monday, valuing the company at RM1.75 billion. The stock has declined 15.4 per cent over the past year and currently trades at a price-to-book ratio of two times, a premium to the sector average of one time.
Looking ahead, the company expects a modest recovery in loan growth, supported by phased civil servant salary hikes introduced in December 2024 and January 2026.
However, CIMB Securities cautioned that borrowing capacity among civil servants may already be stretched amid rising living costs and debt levels.
"Coupled with intensifying competition from digital lenders like TnG Digital, Grab and Shopee, RCE's growth prospects remain constrained," it said.
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