TA Research said it is reiterating its “overweight” call on the sector.
PETALING JAYA: Despite slower year-on-year (y-o-y) loan growth in May, analysts are bullish of the banking sector’s outlook for the year.
Their positive outlook on the sector is premised on, among others, the banking system’s still healthy loan growth, stabilising net interest margins (NIMs), re-rating catalysts from potential write-backs in management overlays and higher dividend payout ratios. Analysts are maintaining their “overweight” call on the sector for 2024.
TA Research said it is maintaining this year’s loan-growth forecast at 6.1%, underpinned by consumer and business loan growth of 6.3% and 5.9%, respectively.
The research house said it is reiterating its “overweight” call on the sector based on rising loan growth, stabilising NIMs, the potential for higher net interest income, gradual acceleration in fee income and healthy capital and liquidity buffers.
“However, potential downside risks include a decline in asset quality due to concerns over rising inflationary pressures amid ongoing subsidy rationalisation, persistent external shocks, weaker contributions from overseas operations and consistently high overhead expenses.
“Despite these risks, the sector’s outlook remains positive, supported by strong performance indicators and growth prospects,” the research house added.
The banking industry’s loan growth moderated marginally from 6% y-o-y at end-April 2024 to 5.8% y-o-y at end-May 2024. The slowdown came mainly from the business-loan segment, with the y-o-y expansion narrowing from 5.6% y-o-y at end-April to 4.8% y-o-y at end-May of this year.
Meanwhile, the growth momentum for household loans inched up from 6.2% y-o-y at end-April to 6.3% y-o-y at end-May, with a slight pick-up in pace for both residential mortgages and auto loans.
Meanwhile, CGS International Research was not overly concerned about the decline in banks’ loan loss coverage to 90.8% at end-May 24 (from around 91.8% at end-April 24 and end-Dec 23).
In fact, the research house sees a loan loss coverage of 80%-90% as comfortable because it is not far from full coverage of 100% and does not take into consideration the value of collateral for the loans.
“We are retaining our ‘overweight’ call on banks, premised on re-rating catalysts from potential write-backs in management overlays and increases in dividend payout ratios.
“Downside risks are a deterioration in asset quality and an escalation in deposit competition among Malaysian banks. Our picks for the sector are Hong Leong Bank Bhd
, CIMB Group Holdings Bhd and Public Bank Bhd,” the research house said.
