PETALING JAYA: Amid easing net interest margin (NIM) pressure and strong performance from banks in the third quarter of 2024 (3Q24), analysts are projecting a conducive operating environment for banks in 2025.
Maybank Investment Bank (Maybank IB) forecast the sector’s aggregate 2024 and 2025 operating profit growth to come in at 7.1% and 5.9%, respectively.
As for aggregate core net profit, Maybank IB projected growth of 8.2% in 2024 and 5.9% in 2025.
In a report, the research firm said cumulative operating income for the banks under its coverage rose 9% year-on-year (y-o-y) in 3Q24 and 8% for the nine-month period (9M24).
It noted that group loan growth moderated, but margins were generally stable to positive quarter-on-quarter in 3Q24.
Non-interest income (NOII) was particularly buoyant, rising 20% y-o-y in 9M24.
Despite a marginally negative Jaws ratio (which is percentage change in income minus percentage change in costs over a period), slightly lower credit cost and robust contributions from associates helped maintain the pace of core net profit growth.
Looking ahead to next year, Maybank IB expected a conducive operating environment.
“Against the backdrop of our gross domestic product growth forecast of 4.9%, we forecast domestic loan growth of 5.5% in 2025, to be led particularly by a pick-up in business loans, and slightly softer consumer loan demand.
“Deposit competition is expected to persist, but at a more rational level,” it added.
While NIMs are expected to be stable, NOII growth is likely to taper off after a strong showing in 2024.
This comes amid lower foreign-exchange and bond market volatility, especially since US Federal Reserve’s rate cuts are expected to be more gradual.
Taking these into account, Maybank IB forecasted aggregate return on equity for 2025 to be sustained at 10.5%, against 2023’s 10.3% and the estimated 10.4% for this year.
Meanwhile, MIDF Research, in its 3Q24 earnings review, highlighted that NOII was the main driver of banks’ earnings, with most banks reporting double-digit NOII growth in 3Q24 and subsequently for the cumulative quarter earnings.
The main contributors for this were fees and commission from active capital markets and treasury income.
It noted that banks did not compete on a broad front but focused on different segments.
“We opine that this somewhat allowed for NIM compression to be manageable, even if we found some banks saw lower current account savings accounts and higher fixed deposits,” the research house said.
Interms of loan growth, analysts noted that the banking system’s loan growth remained strong in October, increasing 6% y-o-y with positive lending indicators.
However, deposit growth eased to 3% from a year ago, compared to 5% in July.
Asset quality remained healthy across the board, with the system’s gross impaired loan ratio nearing the pre-pandemic average.
However, fixed deposit competition has intensified, albeit not as fierce as compared to the level experienced back in 1Q22 and 1Q23.
