PETALING JAYA: Market tailwinds within the banking sector, including persistent loan growth and gross domestic product (GDP) expansion, alongside better margin retention, will likely continue to outbalance industry headwinds.
Despite inflationary pressures and a weaker ringgit, Kenanga Research said in a report that the banking sector is anticipated to face fewer resilience tests.
“The sector should be of interest with dividend yields still appearing attractive (6% to 7%) on most names on top of lower embedded sector volatility as compared to other industries,” it said.
Kenanga Research highlighted the “meaningful” movements in banking stock prices, particularly driven by increased foreign investor interest in accumulating shares of sector heavyweights.
On that note, it named Public Bank Bhd
, RHB Bank Bhd and Alliance Bank Malaysia Bhd as its top picks in the sector.
Kenanga Research projects a loan growth of between 5.5% and 6% in 2024, surpassing its in-house GDP forecast of 4.5% and 5% as household loans could stay buoyant.
It attributed the widening disparity to sustained mortgages stacked up from prior building of loan books, though it expected a stronger emphasis on business loans in the near term.
“Housing transactions are possibly skewing towards affordable homes as opposed to higher value sub-sale transactions. Meanwhile, a persistently soft ringgit will likely leave a mixed impact on net importing or net exporting businesses,” it noted.
That said, Kenanga Research expected the largest support would come from construction and infrastructure projects progressing well.
On the overnight policy rate, the research house projected it to be in steady-state at 3% throughout 2024, with a greater downside-bias should Bank Negara opt for an adjustment.
“This is owing to the abovementioned weak ringgit possibly being a strain to the domestic supply chain,” it said.
Kenanga Research believed tighter monetary controls may not be deemed necessary, given recent fiscal measures such as the two-percentage-point increase in the sales and service tax for selected categories, the upcoming implementation of luxury taxes and targeted fuel subsidies, all of which are likely to exert inflationary pressures on the country.
The research outfit believed that triggers for an earlier-than-expected rate cut could stem from the US Federal Reserve movements.
“Having been hurt by past rate hikes, which inflated the cost of funds, banks look to revitalise interest margins by down-pricing deposits and to prioritise on higher-yielding loan books, going forward (partially attributing to lower financing growth guidance).
“That said, the market will likely remain competitive throughout as market share maintenance may not be fully sidelined in the name of higher margins,” Kenanga Research noted.
Hence, it said certain corporates are anticipating continued compression in net interest margins before a rise to more sustainable levels.
Overall, the research house has maintained its “overweight” call on the sector and believed there is “still room for value”.
