RHB Research said Malaysian banks offer a defensive shelter amid ongoing market uncertainty.
ETALING JAYA: The Malaysian banking sector is expected to remain on a firm footing moving into the second quarter of the year, thanks in part to strong loan growth.
MIDF Research, which maintained its positive stance on the sector, stated that robust loan growth would be the main driver for the sector.
This growth will be buoyed by favourable economic conditions, the acceleration of various large-scale projects including domestic infrastructure projects, the Johor-Singapore Special Economic Zone and increased intra-Asean trade.
“We do note a shift towards business loans, primarily small and medium enterprises, though some banks have heralded a return into the corporate loan space.
“On the retail front, hire purchase and non-secured loans remain very popular among banks, while most players continue to lower residential mortgage uptake (or at least, be more specific with categories of entry),” the research house added.
It noted that the interest-rate situation has become increasingly benign, which bodes well for most players, especially since domestic liquidity seems sufficient for short-term funding.
This implies some stability in the cost of funds, while loan book rebalancing should provide some upside to net interest margin.
“We do note that certain banks that are more reliant on residential mortgages, namely Bank Islam Malaysia Bhd and Public Bank Bhd
, are exposed to higher risks stemming from loan yield compression than most of their peers,” the research house said.
MIDF Research noted that operating expenditure growth continues to be exceptionally sharp, driven by steep wage inflation and tech costs.
However, some banks have highlighted that previous cost-saving efforts are already yielding material results.
The research house said fee income outlook remains solid, although non-fee income volatility, driven by macroeconomic and political instability, could present some downside risks.
MIDF Research noted that asset quality has been relatively stable as of late, with net credit cost (NCC) normalising from extremely low figures or net writebacks.
Its top picks for the sector are Hong Leong Bank Bhd, due to its rapid fee income growth, propensity for higher dividend payouts and defensive traits, and RHB Bank Bhd, for its high dividend yield, recovering profile and return to stronger loan growth.
Meanwhile, RHB Research stated that Malaysian banks offer a defensive shelter amid ongoing market uncertainty, providing decent dividends, while earnings are expected to remain relatively steady.
“We think common equity tier-1 (CET1) ratios at the sector and system levels are generally supportive of future business growth and dividends without further need for capital-raising exercises,” it noted.
As of December 2024, the domestic banking system commanded a CET1 ratio of 14.3%, a figure that remained largely flat throughout the year.
At the individual level, most Malaysian banks under RHB Research’s coverage were also well-capitalised, with all maintaining group CET1 ratios of 13% or higher.
“At the bank level, the same held true with the exception of banks such as Affin Bank Bhd (bank-level CET1 ratio of 12.1%) and Public Bank (bank CET-1: 12.2%). Between the two, we think Affin Bank’s capital position may attract investors’ scrutiny,” it said.
