PETALING JAYA: The banking sector is seen as a “good shelter” from external challenges, say analysts.
In its report, Hong Leong Investment Bank (HLIB) Research said it was maintaining its “overweight” call on the sector.
“From a top-down perspective, we stay bullish on the sector as it provides good shelter from Trump 2.0.
“Also, it offers decent dividend yield of 5% and has visible, defensive earnings with scope to perform pre-emptive provision writebacks.
“Besides, it is inexpensive when compared to its five-year average pre-Covid price to book.
“In addition, we still find that banks have favourable risk-reward profiles, after combing through the other sectors under coverage,” it told clients in the report.
Hence, we adopted a broad stock buying strategy, it said.
The research house noted that the banking system loan growth gained momentum, up 5.7% while deposits remained resilient at 3.1% growth.
However, leading indicators were mixed, it said.
“Separately, we see first quarter of 2025 net interest margins holding up well given easing seasonal fixed deposit rivalry.
“Most banks are looking to employ more disciplined loan expansion strategy and are not aggressively hunting for deposits.”
HLIB Research also said it is not worried about any weaknesses as banks are better equipped now versus previous slumps.
“The large impaired loan provision built up over the past five years act as a robust buffer to cushion any spike in gross impaired loan ratios,” the research house said.
Kenanga Research also noted that the banking system loan segment grew by 5.7% in January and this was within its expectations of around 6%, with mortgage and hire purchase still going strong, likely due to purchases ahead of festivities in the first quarter of this year.
“The same festivities led to a surge in business loan applications which should enter the system in the coming months.
“Our deposits growth target of around 3% holds well with January’s growth of 3.1% indicating a softer appetite amid low interest rates offered by banks.”
It said on the back of a stable overnight policy rate of 3% throughout this year, the immediate headwinds consist of uncertainties in foreign trade policies and the RON95 subsidy rationalisation, which could possibly hamper consumer appetite for loans.
Kenanga Research said its first quarter top picks are AMMB Holdings Bhd
for its efforts in optimising its return on equity and higher payouts to drive dividend yields above its present 5%, and Malayan Banking Bhd for remaining the market share leader while still expanding at the expense of other banks.
Its dividend yields of around 6% continued to lead and are expected to be entirely in cash, it added.
