ESG-GRADED BANKS OUTPERFORM INDEX

Maybank, Public Bank and BIMB have above-average ROE and P/B valuations, says HLIB Research

MALAYSIA’S top three environmental, social and corporate governance (ESG) scoring banks — Malayan Banking Bhd (Maybank), Public Bank Bhd and BIMB Holdings Bhd — have outperformed Bursa Malaysia’s KL Finance Index by 17, 24 and 170 per cent in the past three, five and 10 years, respectively, on average.

Hong Leong Investment Bank Bhd (HLIB Research) said the banks were trading well above 1.0 times price-to-book value (P/B) and the sector means of 0.9 times.

“While it is evident ESG investment can give additional alpha returns, one must diligently incorporate traditional financial analysis into their decision-making process. Looking at the top three ESG-graded banks, they have above-average return-onequity (ROE) output and P/B valuations. In general, valuations of banks are still mainly based on tangible assets (measurable in nature) and remain largely dependent on stock fundamentals for price discovery by employing ROE and long-term growth with ESG acting as a supplement,” it said yesterday.

HLIB Research said ESG investing was gaining prominence rapidly, and studies had revealed conscious capitalism could reduce portfolio risks and churn better returns.

“Based on our analysis, Maybank posted the highest ESG grade while Alliance Bank Malaysia Bhd was at the bottom of the rankings. However, we saw improving ESG scores year-onyear for the majority of banks under our coverage,” it said.

It has maintained its “overweight” call on the banking sector.