HLIB Research said that banks are generally looking to preserve their NIM.
PETALING JAYA: Analysts are maintaining a tinge of positivity on the banking sector, after the third quarter 2024 results (3Q24) that has largely come within expectations, with further anticipation that net interest margins (NIM) may improve next year.
Hong Leong Investment Bank (HLIB) Research reported that in the just concluded results season, five banks out of eight under its coverage have managed to achieve profits that are in line with anticipations, two above, and one was below.
“Robust revenue growth along with lower allowance for bad loans helped sector earnings to rise 11% year-on-year (y-o-y),” it said, before adding its expectation of a softer NIM heading into 4Q24 given fixed deposits rivalry that typically heats up in the October to December period.
However, the research unit noted that banks are generally looking to preserve their NIM by being stricter for both loans and deposits pricing, although credit growth is seen to keep up and asset quality is expected to stay stable, backed by a resilient and robust economic condition.
HLIB Research observed that the loan loss coverage for banks continues to be elevated, staying above pre-lockdown levels, thanks to large pre-emptive provisions still sitting in their books that could serve as a profit lever in times of need.
Looking ahead, it is anticipating a relatively quiet December with limited attempt to window dress.
“Instead, many investors could be incentivised to lock some profits and avoid setting a higher performance benchmark for 2025.
“Also, foreigners continued to be net sellers, capping returns,” said the research house.
On the other hand, it sees any pull-backs as healthy, as they present opportunities to buy on weakness, coupled with their belief that there is upside bias to the industry NIM estimate for next year, which is a boon for banks.
HLIB Research highlighted its only two “buy” calls among lenders are RHB Bank Bhd and AMMB Holdings Bhd
, with respective target prices of RM7.30 and RM6.15, as it maintains a “neutral” call on the sector itself.
Meanwhile, for October itself, CIMB Research said the numbers presented a mixed picture of leading loan indicators slowing – albeit from a high base – and deposit growth softened, while loan growth picked up and asset quality improved.
In a note to clients, it said loan growth picked up again to 6% y-o-y in October 2024, from 5.6% y-o-y in September 2024, supported by the household and corporate segments.
“Deposit growth was softer at 3.2% y-o-y in October, against 3.3% in September, mainly owing to current account and savings account (CASA) growth tapering off to 4% y-o-y in October from 5.2% y-o-y in the month before. The loan-to-deposit ratio edged up to 88% in October from 87.7% in September, returning to the August level of 88%,” it noted.
The brokerage firm is remaining positive on the sector given that there are no major adverse indicators, as it keeps its “overweight” stance with further re-rating catalysts being non-interest income bond gains and a possible uplift in loan growth.
“Key risks are higher-than-expected cost of funds, outflow of liquidity, and worse-than-expected asset quality. Our top picks in the sector are still Hong Leong Bank Bhd, AMMB and Malayan Banking Bhd,” it said.
