PETALING JAYA: In the run-up to domestic banks releasing their fourth-quarter ended Dec 31, 2024 (4Q24) and full-year financial results in the coming weeks, analysts are expecting weaker quarter-on-quarter (q-on-q) earnings although year-on-year (y-o-y), financial performance should hold up.
Analysts expect net interest income (NII) to be affected by net interest margin (NIM) pressure to varying degrees as banks compete over deposits at the year-end. While RHB Research does not expect deposit competition to be as fierce as 2023, it could still impact banks’ NII, although NIM compression could be lower than 4Q23’s 4-basis point drop.
On non-interest income, RHB Research believes that fees stayed resilient on healthy loan-and-card-related fees and continued traction in wealth management offerings, but treasury income could come in sequentially lower off 3Q24’s high base as yields on 10-year Malaysian Government Securities were flattish during the quarter, save for some periods of volatility around the US election period.
It expects 4Q24 operating income to come in lower q-on-q on the above factors, but higher y-o-y. “In upcoming briefings, we hope to hear if banks see room for further deposit rate cuts, impact of Basel III reforms on capital strategies/dividend policies, and plans for loan provision buffers,” it noted. RHB Research has maintained an “overweight” call on banks, with the top picks being AMMB Holdings Bhd
, Alliance Bank Malaysia Bhd and CIMB Group Holdings Bhd.
December 2024 banking system statistics showed gross impaired loans (GIL) down 8% y-on-y and declining 5% q-on-q, with system GIL ratio easing 0.2 percentage points y-on-y to 1.4% and loan loss coverage stood at 91.4%. Loan growth moderated to 5.5% y-on-y and 2% q-on-q but compared favourably against the 5.3% recorded in 2023. Loan-to-deposit ratio was two percentage points higher.
RHB Research expects the usual seasonal impact to operating expenditure to kick in in 4Q24 coupled with potential catch-ups in spending for IT and special projects as well as increased marketing and one-off personnel-related expenses. “Conversely, asset quality stability should help keep credit costs low, and there could even be scope for management overlay reversals by some banks: Malayan Banking Bhd (RM1.7bil) and Public Bank Bhd (RM1.5bn) have the largest absolute stock of overlays remaining.
CGS International Securities Malaysia Sdn Bhd, which has maintained an “overweight” call on banks, said deposit competition towards the year-end probably led to banks’ 2024 NIM getting closer to 2023’s level of 2.04% despite a gradual uptrend in average quarterly annualised NIM that saw it rising 2.06% in 3Q24 from 2.02% in 4Q23.
For 4Q24, CGS International expects NII growth of 2% to 3% y-on-y, around 5% y-on-y increase in non-interest income and 7% to 8% y-on-y rise in overheads. “We project healthy aggregate net profit growth of 6.2% for banks in 2025, slower than the 8.2% we forecast for 2024. The key earnings drivers in 2025 are increases of 7.9% in NII and 3.5% in non-interest income, based on our projections. Meanwhile, we forecast a rise of 5% in overheads and 14% increase in loan loss provisioning in 2025,” it added.
CGS International has “add” calls on AMMB, Hong Leong Bank Bhd and Public Bank.
