PETALING JAYA: The banking sector is anticipated to maintain its resilience this year, underpinned by strong economic fundamentals.
Kenanga Research in a report said 2024 is expected to be supported by the roll-out of public infrastructure projects, with foreign investors renewing interest.
“On the flipside, household spending may be pinched by tax reforms and the progressive implementation of targeted fuel subsidies. That said, we expect Bank Negara to be cognisant of these factors and may keep the overnight policy rate stable throughout the year to keep overall activities intact, with higher possibility of downside adjustment.
“This is in line with the anticipated softening of monetary policies from leading markets.”
The research house said its sector top pick for the first quarter of 2024 (1Q24) is AMMB Holdings Bhd
.
Kenanga Research said AMMB’s plausible consolidation angle is validated by its rejuvenated earnings with an anticipated knee-jerk interest following an upcoming tax credit gain in 1Q24.
“We bring attention to Malayan Banking Bhd (Maybank) for its sustainable and leading dividend returns amongst the large cap banks.
“Being the leading bank in terms of market share, Maybank could also be viewed as the best beneficiary for stronger economic activity.”
As for small cap banks, Kenanga Research says Alliance Bank Malaysia Bhd remains its favourite for its solid fundamentals, which are comparable to its large cap peers.
“Additionally, its leading current account savings account level may provide the group nimbleness to balance its interest margins with market share acquisition strategies.”
CGS-CIMB Research meanwhile projects a slower loan growth of 4% to 5% this year for the banking sector, with a potential slowdown in auto loan growth from 9.7% in 2023 to low single-digit rates in 2024.
This, the research house said, is on the back of expectations of weaker auto sales in 2024.
“Tracking the year-on-year (y-o-y) loan growth (for the end of every month), the growth momentum has been accelerating strongly from 4% y-o-y at end-October 2023 to 5.3% y-o-y at end-December 2023.”
CGS-CIMB Research said the key catalyst was improvement in business loan growth, from 1.1% y-o-y at end-October 2023 to 3.6% y-o-y at end-December 2023.
“This was in line with our expectation of an uptrend in loan growth on improved business confidence, following the state elections in August 2023. The federal government managed to retain control of three key state governments, which signalled increased political stability for the rest of its term.”
CGS-CIMB Research said it reaffirms its overweight call on banks, supported by the sector’s strong dividend yield of 5.1% for 2024.
“Re-rating catalysts include potential write-backs in management overlays and increases in dividend payouts, as more banks embark on capital management initiatives. Potential downside risks would be a material deterioration in loan growth and asset quality.”
“Our picks for the sector are Hong Leong Bank Bhd, Public Bank Bhd and RHB Bank Bhd.”
AmInvestment Bank noted that growth in non-household loans climbed to 4.5% y-o-y in December 2023, compared with 3.5% y-o-y in November 2023.
“(This was) driven by stronger pace of financing to mining, quarrying, wholesale, restaurants, hotels, transport, storage, communication, financing, insurance, business services, education, health and other sectors.
“For 2024, we expect industry loans to grow by 4% to 5%.”
The research house is maintaining a “neutral” stance on the local banking sector.
This, AmInvestment Bank said, is premised on macro headwinds, ongoing geopolitical tensions, pressure on funding cost in the near term and uncertainties in yield curve, which is likely to impact treasury and investment income in 2024.
RHB Investment Bank is also maintaining its “neutral” outlook for the local banking sector.
“While a positive macroeconomic backdrop could lend support to banking stocks’ performance this year, we expect the sector’s earnings to moderate back to trend growth of 6% y-o-y.
“Hence, we do not see meaningful sector outperformance this year.”
