‘FAIRLY GOOD YEAR FOR BANKING SECTOR’
‘Overweight’ call from most research firms with expected loan growth of 4-5.5pc
MALAYSIAN banks will likely see weaker loan growth in 2023 due to rising inflationary pressure and slowing economic activity but will continue to have a fairly good year ahead.
Several analysts expect the banks’ loan growth to range from four per cent to 5.5 per cent.
The banking sector’s loan growth rose from 5.5 per cent year-on-year at end-November to 5.7 per cent at end-December, fuelled by both the household and business segments.
Kenanga Investment Bank Bhd (Kenanga Research) and CGSCIMB Research expect loan growth to normalise at four to 4.5 per cent this year, while Hong Leong Investment Bank Bhd (HLIB Research) has forecast a five to 5.5 per cent expansion.
MIDF Research said with lending rates having nearly normalised and liquidity no longer as cheap, its system loan forecast for this year was a muted 4.5 to five per cent.
“The sector must contend with several headwinds in the coming quarters: most notably asset quality issues stemming from RA (risk assessment) loan graduation. Additional issues include higher tech spend, cost inflation and liquidity pricing.
“While the sector no longer remains as attractive, we look to possible further Overnight Policy Rate (OPR)-hike uplifts to net interest income (NII), improved NOII (non-interest income) outlook and attractive dividend yields,” said MIDF Research.
Kenanga Research, which maintained its “overweight” call on the banking sector, said banks would likely not be affected as drastically as other sectors, given their widely diversified exposure, with constant stress testing being conducted to strengthen preparedness.
“In the medium term, should macros not pan out to be worse than expected, we should see a strong earnings uplift sectorwide (more than 20 per cent earnings per share growth) coming from the relaxation of provisioning requirements, with possible write-backs to bolster earnings further,” said its analyst Clement Chua.
Kenanga Research’s top stock picks are Malayan Banking Bhd, CIMB Group Holdings Bhd and Alliance Bank Malaysia Bhd.
CGS-CIMB reaffirmed its “overweight” call on banks based on the potential rerating catalyst of continuous expansion in net interest margins amid an OPR upcycle, and stronger growth in non-interest income due to improvement in investment income in 2023.
HLIB Research has maintained its “neutral” call on the banking sector due to its balanced riskreward
profile.
“Banks may have to grapple with possibly steeper cost of funds, smaller non-interest income and loan growth,” said its analyst Chan Jit Hoong.
Its picks are RHB Bank Bhd (RM6.60 target price) for its high common equity Tier 1 ratio and attractive price point, as well as Bank Islam Malaysia Bhd (RM3 target price) for its laggard share price performance.