MALAYSIA's top banks are set to post steady-to-stronger quarterly earnings, supported by strong loan demand and better non-interest income on the back of a buoyant economy and resurgent stock market.
Like their regional peers, Malaysian lenders are tracking rosier global economic outlook, as rising corporate investment and consumer spending fan an increase in lending activity, but are also facing growing competition.
Malaysia's three largest banks – Malayan Banking Bhd (Maybank), Commerce Asset-Holding Bhd (CAHB) and RHB Capital Bhd are due to release earnings next month.
The biggest, Maybank, is seen registering the smallest rise of the three, with net profit expected to have risen only 0.3%, according to Reuters Research estimates.
Number two bank CAHB is expected to post a 2.2% gain on the previous year's quarter, while the smallest of the three, RHB Capital, is thought to have had the biggest rise of 36%.
“Margins are being hit. With increased competition and a smaller pie to work with, everyone's running twice as fast,” said PyeSen Tan, research head at JP Morgan Malaysia.
Under government direction, Malaysia's banking sector has consolidated from dozens of banks at the time of the Asian financial crisis to just 10 domestic banks today.
Adding to the competitive pressure, foreign lenders such as Citigroup Inc, Citibank NA and HSBC, have been growing their businesses steadily, and now account for a quarter of Malaysia's banking assets.
Analysts expect faster loan growth, higher non-interest income, falling non-performing loans (NPLs), higher loan recoveries and lower bad debt provisions to help offset the competitive pressures in the market.
The expectation of strong economic growth Malaysia's economy is officially projected to grow up to 6% this year from 4.5% in 2003 has inspired investors to flock to equities.
The KLSE Composite Index gained 8.2% during the three months to December 2003, translating into big gains for equity investments held by banks. The index rose just 1.3% in the same quarter in 2002.
Lower losses from trading in the slowly recovering bond market also probably helped non-interest income rise from the previous quarter.
The bond market lost more than RM5bil in value after optimism about the economy in mid-2003 stoked concerns of higher interest rates.
Bad loans are expected to continue to drop in tandem with the economic growth. Maybank's net NPLs (based on a three-month classification) could fall to 5.8% in the current fiscal year from 6.2%, analysts said.
Maybank is estimated to have earned a net profit of RM526.8mil in the second quarter ended December 2003, while CAHB earned RM175.9mil. – Reuters
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