PETALING JAYA: With improving loan growth and asset quality, the banking sector in Malaysia is expected to see enhanced operational efficiency and stronger financial performance.
As such, several brokerages are reiterating their “positive” and “overweight” stances on the banking sector.
RHB Research, for one, noted that August 2024 banking statistics showed continued strength in system loan growth, while asset quality remained sound across the board.
“We think this should translate well for the operations – and eventually, earnings – of the banks under our coverage,” the brokerage wrote in its report.
“The sector could provide investors with some shelter in periods of volatility,” it added.
Data from Bank Negara showed the sector’s loan growth came in at 6% year-on-year (y-o-y) in August 2024, bringing year-to-date loan growth to an annualised 4.4%.
RHB Research forecasts a loan growth of 5% to 5.5% for 2024.
It noted that business loan approvals were up by a healthy 4%, indicating that there could be chunky loan disbursements in the remaining three months of the year.
“We also note that most of the banks under our coverage are aiming for a loan growth north of 6% in their respective financial years, implying some optimism from the lenders in the domestic economy,” RHB Research explained.
Maybank Investment Bank (Maybank IB) Research maintained its loan growth forecast of 5.5% for 2024.
Meanwhile, it noted that the gross impaired loan (GIL) ratio was trending down towards the pre-Covid level of 1.51% at end-December 2019.
Data showed absolute impaired loans declined 5.9% y-o-y as at end-August 2024, while the industry’s GIL ratio was 1.58%, as compared to 1.65% at end-December 2023 and 1.72% at end-December 2022.
“Current account-savings account (Casa) continues to expand though at a slower pace while asset quality continues to improve, pointing to lower impairment provisions ahead, especially amid fairly robust economic growth,” Maybank IB Research said.
Casa growth slowed to 4.1% y-o-y against 6.4% y-o-y as at end-July 2024, but remained in the positive growth territory for the 11th month.
TA Research noted rising loan growth, stabilising net interest margin (NIM), the potential for higher non-interest income, a gradual acceleration in fee income and healthy capital and liquidity buffers were some of the positive factors supporting the outlook for the Malaysian banking sector.
It maintained its 2024 loan growth forecast at 6.1%, underpinned by consumer and business loan growth of 6.3% and 5.9%, respectively.
Nevertheless, the brokerage acknowledged the sector continued to face some downside risks, which included the potential decline in asset quality due to concerns over rising inflationary pressures amid the 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 solid performance indicators and growth prospects,” TA Research said.
MIDF Research said robust loan growth and stable asset quality were keys to the optimistic outlook for the banking sector.
Contrary to the brokerages above, Hong Leong Investment Bank (HLIB) Research maintained its “neutral” rating on the banking sector.
“With the price run-up of banking stocks in the month of August and ringgit performing strongly, foreign investors are sitting on handsome currency and capital gains. As such, banks are susceptible to selling pressure,” it explained.
“That said, pullbacks are healthy and it presents an opportunity to buy on weakness. After all, there are not many sectors without headwinds in Malaysia currently. Moreover, there is an upside bias to the NIM estimate for 2025, which is a boon for banks,” it added.
Overall, HLIB Research argued that mid and small banks would offer a better risk-reward profile.
