KUALA LUMPUR: Maybank Investment Bank Research expects banks’ earnings to be reduced by 13% this year and by 15% next year following slower loan growth, net interest margins (NIM) compression, lower fee and investment income as well as higher credit costs.
“We now expect aggregate net profit to contract by 13% in 2020 with a modest growth of 2% in 2021 on still elevated credit cost, ” it said on Wednesday.
It said it had, over the past few weeks, imputed slower loan growth, NIM compression, lower fee and investment income and higher credit costs into its forecasts.
“We now expect aggregate core net earnings for the banks in our coverage to contract by 13% in 2020, with muted growth of 2% in 2021.
“We remain sector Neutral. We have since downgraded AMMB and HL Bank to HOLD and our BUYs currently are RHB and BIMB, ” it said.
Following Bank Negara’s decision to slash the overnight policy rate (OPR) by 50 basis points on Tuesday taking the total cut this year to 100bps, following the 25bps OPR cuts on 22 Jan and 3 Mar respectively.
Maybank IB Research said this was in line with its economics team’s in-house expectation. The team expects a pause in the OPR as Bank Negara and the government monitor the implementation and effects of various policy measures, and are thus keeping its end-2020 OPR forecast of 2.00% for now.
While the statutory reserve requirement (SRR) is unchanged at 2%, Bank Negara had in March 2020, allowed banks to use Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) to comply with the SRR effective May 16 to 31, thus effectively freeing up liquidity without the need to revise the SRR.
“Our bank earnings forecasts impute three rate cuts of up to 75 bps and while this May cut is 25bps larger, we maintain our earnings estimates.
“The bulk of deposits typically reprice within three to six months of a rate cut and the fact that this eventually offsets the decline in yields has yet to be incorporated into our models.
“On aggregate, we expect NIMs to compress by 7bps in 2020 vs 6bps in 2019, for the stocks in our coverage, ” it said.
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