Kenanga Research believes banks will face less competition for deposits and will instead focus on optimising financing rates.
PETALING JAYA: Some banks are expecting net interest margins (NIMs) to face some pressure as deposit rates may take time to normalise and asset yields catch up this year.
Loan-growth expectations for 2024 appear to be slightly more moderate with several banks eyeing potential softness from unfavourable domestic macroeconomic factors.
This is mainly due to a softer foreign exchange environment, as well as possible inflationary pressures, said Kenanga Research.
However, the research house believes some support should be expected from greater funding needs for infrastructure projects and the rejuvenation of exporters that benefit from a weak ringgit.
On the other hand, asset-quality concerns are likely to remain subdued, given expectations for reporting to remain flattish, as certain banks with balance overlays are likely to opt for reallocating their buffers to non-pandemic related accounts.
Kenanga Research expects the overnight policy rate to stay at 3% throughout 2024.
It believes banks will face less competition for deposits and will instead focus on optimising financing rates.
The sector’s key concerns are the health of the local economy and weak consumer demand on sustained high inflation, increased taxes and the knock-on effect from subsidy rationalisation.
The research house maintains its “overweight’’ position in the banking sector.
Following results for the fourth quarter of 2023, Kenanga believes investors may continue to see opportunities in the sector as its earnings resilience remains highly supported.
Concerns appear to be more muted compared with past years, albeit with some smaller banks still appearing to be navigating challenges.
Dividend yields of 6%-7% could still be offered by certain names with sustainable returns on equity (ROE) to boot.
Its sector picks for the time being are RHB Bank Bhd (with a target price of RM7.25 a share) as the leading dividend contender.
The other is Alliance Bank Malaysia Bhd
with a target price of RM4.30 on solid fundamentals despite its smaller market cap and portfolio size.
The research house highlighted RHB Bank as its dividend yield prospects are now reaching about 8% territory, depending on entry level.
Notwithstanding this, its tier 1 common equity ratio of about 16% is one of the highest among its large-capitalisation peers.
