KUALA LUMPUR: RHB Research has maintained its Neutral call on the banking sector, adding that the fourth quarter sector net profit was dampened by NIM pressure and chunky loan impairment allowances made by CIMB.
"The jump in overheads was also a negative surprise although non-interest income was better than expected, while
asset quality was generally stable. Looking ahead, the banks see 2015 as another challenging year amid softer GDP and capital markets," it said in a note on Friday.
It added that four out of the seven banking stocks that it cover reported results that were in line with both Affin's and consensus expectations, but Maybank and Affin beat estimates while CIMB’s results were below expectations.
It said loan growth ended 2014 on a strong note, ie +4% QoQ (+11% YoY) – with several banks reporting robust lending activities to the SME segment.
The numbers suggest that banks’ efforts to focus on SMEs may be starting to bear fruit. The banks remained optimistic that this segment will be a key loan growth driver ahead, as household loan growth is expected to continue to moderate due to the various macro prudential measures introduced, while the current uncertain economic environment would impact corporate lending activities.
Sector asset quality was slightly better QoQ and excluding CIMB’s chunky provisioning, it would have enjoyed a net
writeback in loan impairment allowances in 4QCY14.
Thus, loan loss coverage (LLC) levels for most banks were relatively stable QoQ and, in some cases, lower.
Increasingly, more banks are setting aside regulatory reserves to meet BNM’s requirement, it said.
"We would not be surprised if banks opt to build up coverage via the regulatory reserves ahead so as
to avoid impacting profits.
"We remain Neutral on the sector, with Public Bank as our sole Buy recommendation," it added.
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