PETALING JAYA: The banking sector’s earnings in 2025 will continue to be robust and supported by solid gross loan growth as well as stable asset quality, according to MIDF Research.
Stable asset quality, coupled with solid dividend yields, should moderate downside risk, it added.
“We believe this year’s dividend outlook remains very bright.
“Furthermore, the defensive feature of the banks will be a key proposition given the possibility of the market remaining volatile,” MIDF Research said in a report yesterday.
It noted that several banks continued to maintain their intention to increase dividend payouts and more banks are offering full cash dividends.
Bank Negara’s banking statistics last November showed banking system loans growing 5.8% year-on-year (y-o-y).
“However, all segments saw robust loan growth. We expect that the banking system loans to end close to our forecast of 6% y-o-y for 2024.”
Deposits competition could also be mild this year, said MIDF Research.
The research house’s economics team is projecting the country’s gross domestic product (GDP) to continue growing, albeit at a normalised level of 4.6% in 2025.
MIDF Research expects net interest income growth to remain robust due to stable net interest margin and sturdy loan growth, while non-interest income (NOII) expansion will likely normalise.
“NOII in 2024 was lifted by both fee and non-fee contributions.
“While we opine that the growth pace may not be repeatable in 2025, we expect growth to continue albeit at more normalised level due to base effect.”
Operating expenditure would also come in at contained level after banks invested heavily to improve efficiency in 2024 and collective agreement adjustments for unionised workers.
As for asset quality, it will to continue to remain healthy.
“System gross impaired loan (GIL) ratio has been improving each month and was the best since August 2023 at 1.51% as of November 2024.
“We have seen this for the banking sector under our coverage,” the research house added.
It expected to see a stable GIL ratio throughout 2025 with some gradual improvements.
“We anticipate lower provisioning charges, with the brunt of banks already having boosted their loan loss coverage to comfortable positions.
“Potentially there could be some writebacks but we are not imputing this as a source of earnings growth.”
For 2025, MIDF Research is expecting earnings of banks under its coverage to expand by 6.3% y-o-y.
