Most banks' earnings beat forecasts

  • Business
  • Wednesday, 02 Sep 2009

PETALING JAYA: Most banks have performed above consensus expectations in the latest quarterly results season (see table) due to lower-than-expected non-performing loans (NPLs).

Banking outlook for the second half of the year is expected to improve in tandem with the recovering economic conditions.

Malayan Banking Bhd’s fourth quarter earnings, however, were hit by RM1.7bil of impairment charges from its investments in Bank Internasional Indonesia and MCB Bank Ltd.

According to an analyst, banks had taken pre-emptive measures last year in anticipation of the slowdown.

The risk of rising NPLs, however, was not as benign as expected and therefore, loan loss charged for most banks was below estimates, she told StarBiz in a telephone interview.

“Net interest margins have also recovered pretty healthily during the quarter and banks are seeing recovery in demand for credit, which bodes well for loans growth,” she said.

Furthermore, the recovery of the capital markets, especially equities, would encourage more corporate exercises that would augur well for investment banking, the analyst said.

Banks like Bumiputra-Commerce Holdings Bhd (BCHB) and AMMB Holdings Bhd saw better contributions from their respective corporate and investment banking segments.

BCHB’s earnings were also fuelled by its Indonesian operations via CIMB Niaga while Hong Leong Bank Bhd saw the maiden contribution from its 20% associate, Bank of Chengdu Co Ltd.

Jupiter Securities head of research Pong Teng Siew said higher bond prices and increased foreign exchange trading activities during the quarter also provided additional income for banks.

Islamic banking also did very well thanks to lower cost of funds, he said, adding that banks were able to leverage on the better performance and increase their loan loss coverage.

AmResearch said in a report any deterioration in overall asset quality would be manageable as the sector had adopted pre-emptive measures to address the issue such as the setting up of Danajamin Nasional Bhd, the SME Assistance Guarantee Scheme (via Credit Guarantee Corp Malaysia Bhd) and the re-activation of Corporate Debt Restructuring Committee.

Banks were likely to report stronger bottom lines in the coming quarters as mark-to-market revaluation losses from securities were expected to reverse in tandem with the recovery in the various asset markets, it said.

A bank-backed research house, meanwhile, noted that net NPL ratio improved to 2.1% in July, which would bode well for banks as it limited the risk of higher loan loss provisions.

However, the pace for consumer and business loans decelerated in July, raising concerns over a further weakening of the industry’s loan growth, it said, adding that it was maintaining the loans growth for the year at 5% to 6%.

Another banking analyst maintained her neutral outlook on the sector on the back of prevailing uncertainties looming in the global economic environment.

“Interest income margin for banks may still be pressured by intense competition, although this could be offset by loans growth, which is expected in the mortgage and corporate loans segments,” she said, adding that non-interest income would see a stronger improvement.

Pong said valuations of companies had improved, which would encourage corporate activities like mergers and acquisitions, privatisation and new public offerings and boost advisory fees for banks.

Nonetheless, the pace of earnings improvement for banks may slow down in the second half year as the benchmark interest rate had been maintained at 2%, which would limit trading profits enjoyed in the second quarter, he added. For latest Bursa Malaysia indices, charts and other information click here

For latest Bursa Malaysia indices, charts and other information click here

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