PETALING JAYA: Tailwinds outweigh headwinds within the banking sector, accompanied by a bright dividend outlook, but a prolonged Middle Eastern war spells trouble, MBSB Research says.
Citing management of banks, the research house said it was positive on net interest margin, fee income and the provisioning outlook of lenders.
“Regardless, the ongoing Middle Eastern war could result in issues with asset quality or at least instances of higher provisions and dampen loan demand,” MBSB Research told clients in a report.
It said in the quarter that just ended, loan growth continued its steep recovery, driven by non-retail pipeline improvements. Liquidity-wise, this is of limited concern, it added.
“While some ratios were tight, banks still seem to be maintaining aggressive uptake of current account savings account balances. No issues whatsoever with asset quality.
“With it being a solid dividend quarter, capital levels went down across the board noticeably as Basel transition will be capital accretive for most,” it said.
MBSB Research said Malaysia’s robust economic outlook, high dividend yields with upside possibility, excellent asset quality and superior geopolitical stability (relative to neighbouring peers) made local banks look “particularly attractive”.
Elaborating on dividends, it said: “We think the possibility of special dividends and other forms of capital release remains very high, though there may be a delay in announcements. While capital is elevated and Basel IV transition should be capital accretive in most cases, most banks want further certainty before pulling the trigger.”
MBSB Research also said in the near term, wealth management, bancassurance and debt capital markets would be major drivers of the fee side – especially as market performance, loan growth and economic sentiment improve.
Foreign-exchange volatility aside, the stabilisation of interest rates should result in some moderation in investment income, it added.
It said liquidity had improved significantly since the last quarter, with more readily available cheap current account savings account in the market.
The Indonesian and Singapore situation has also improved, as most loan growth targets are not overly lofty, it added.
“We doubt that most banks will run into any crippling liquidity shortages.”
It remains neutral on loan growth as business loans have been dwindling of late, given that working capital continues to weaken – particularly the small and medium enterprises segment.
“Retail loan growth has been on a downward trajectory for several years.
“For the most part, banks are not guiding for very strong local figures either – particularly the large banks.”
MBSB Research has maintained a positive call on the banking sector.
Meanwhile, a senior banking analyst told StarBiz that banks remained a top pick even amid global tension.
“Banks will continue to benefit from a strong domestic economy which we seem to have. Additionally, our lenders have strong balance sheets and still profit very well from current interest rates.
“Another thing is that foreign funds like local lenders as they are large and liquid, and pay good dividends,” he said.
