‘RECORD YEAR FOR BANKING SECTOR’

Analysts see boost from improved loan growth, net interest margin and asset quality on results

MALAYSIA’S banking sector is poised for a new all-time high this year on expectations of improving loan growth, net interest margin (NIM) and asset quality.

However, analysts expect a moderate eight per cent growth pace this year after the 15 per cent earnings growth last year.

Hong Leong Investment Bank Bhd (HLIB) said while the sector had a record performance last year, earnings were likely to sustain this year.

Banking stocks have outperformed FTSE Bursa Malaysia KLC, rising 6.76 per cent year-todate against the key index’s 2.29 per cent gain.

Maybank Investment Bank Bhd (Maybank IB) expects its core net profit to expand at a faster rate of 7.8 per cent compared to 5.4 per cent for its operating profit yearon-year, in the absence of bond impairment provisions.

It also raised the core earnings growth target for this year, albeit lower than last year’s estimate of 14.9 per cent.

However, it said upside surprises could come from faster-thanexpected loan growth and NIM from more rate hikes.

“We forecast a moderation in gross domestic product growth to 5.3 per cent from 5.9 per cent last year. Operating profit growth is set to moderate to 5.4 per cent from 9.4 per cent last year, largely on account of more stable NIM and more moderate growth in non-interest income.”

HLIB said after three consecutive years of non-growth, last year provided a relief as cumulative core net profit for its banking stock coverage jumped 15 per cent year-on-year.

The sector’s cumulative operating profit rose nine per cent year-on-year, supported by an average NIM expansion of five basis points, which more than compensated for loan growth of just about two per cent last year.

The sustained earnings recovery would likely be driven by higher loan growth expectations, stable contribution from NOII (non-interest income), discipline on expenses and the ending of impairment programme.

“While we expect further stability in banks’ asset quality in 2018, certain segments may pose a risk to potential asset quality stability.

“We expect banks’ loan loss coverage to improve given the slower trend of large provision and we foresee liquidity on the mend since Bank Negara Malaysia implemented forex measures that cap further liquidity outflow,” HLIB added.

Malayan Banking Bhd led big banking stocks to end lower yesterday, although the finance index edged up 0.49 per cent to 18,124.59 points.

Maybank eased 0.19 per cent to RM10.48, CIMB Group Holdings Bhd dropped 0.69 per cent to RM7.15, Public Bank Bhd declined 0.26 per cent to RM22.94 and RHB Bank Bhd slipped 2.78 per cent to RM5.24.