The 25 basis point increase in the Overnight Policy Rate (OPR) will benefit fixed deposit (FD) savers after the real rate of return on deposits will return to positive in 2018.
KUALA LUMPUR: CIMB Equities Research sees tougher times ahead for banks as they have to grapple with other earnings risks, such as weak business loan growth and margin erosion.
In its research note on Monday, it said the oversupply of commercial properties was not likely to pose a significant threat to the banking sector.
“In view of the earnings risks faced by the Malaysian banks, we continue to rate the sector as Neutral. The upside/downside risks to our call are pick-up/ deterioration in the industry’s loan and fee income growth,” it said.
CIMB Research said Bank Negara has reiterated its concerns over the oversupply of commercial properties in Malaysiain its report for Financial Stability Review 1H18.
“We think the oversupply situation would be negative (albeit not significant) for the banks as it could negatively affect their: (1) loan growth, (2) asset quality, and (3) credit costs,” it said.
Among the local banks, Public Bank has the highest proportion of non-residential mortgages (NRMs), comprising 25.8% of total loans at end-2017.
Conversely, Maybank had the lowest NRM share of only 8.3%. In terms of NRM growth, RHB Bank’s has expanded the fastest as its NRMs have almost tripled in the past five years.
“Based on our simulation, we estimate that a 1% pt slowdown in the banks’ loan growth (in the event that the oversupply of commercial properties dents NRM expansion) would drag down the banks’ FY19F net profit by circa 0.8%.
“The glut may cause a drop in property prices, leading to higher credit costs for banks. If this happens, we estimate that a 1bp increase in the banks’ credit charge-off rate would shave 0.5% off the sector’s FY19F net profit.
“We think that a slowdown in NRM growth could affect Public Bank’s FY19F loan growth the most as NRMs accounted for 25.8% of its total loans at end-2017 (the highest in the sector).
“The impact would be the smallest for Maybank as NRMs only made up 8.3% of its total loans at end-2017. Based on our estimates, Affin Bank could be the most negatively affected by any increase in credit cost for NRM because at end-2017, its NRM gross impaired loan ratio was the highest among the local banks that we cover,” said the research house.
CIMB Research keeps RHB Bank as its top pick for the sector, premised on: (1) its attractive valuations of 8.5 times CY19F P/E of and 0.8 times CY19F P/BV, below the local sector average of 12.7 times and 1.3 times respectively, and (2) the positive changes in the company from its ongoing transformation programme.
It has a target price of RM6.23. It closed at RM5.31.
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