Cautious optimism ahead for banking players
KUALA LUMPUR: Analysts are cautiously optimistic ahead for the banking sector but maintain their ‘neutral’ outlook going further into 2018.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) was cautiously optimistic ahead despite positive and stable economic outlook domestically and externally.
“Despite the positive outlook, banks will still be cautious and selective on assets,” it said in the report yesterday. “Part of the caution on assets is due to curb higher credit charge under the Malaysian Financial Reporting Standard 9 (MFRS9) era.”
Although guidance on credit charge has been lower than expected, the research arm did not discount volatility under the MFRS9 era if economic outlook shift downwards.
Kenanga Research’s earnings estimates for current year 2018 estimate (CY18E) were revised upwards, at 12.9 per cent, from four per cent year on year (y-o-y).
This was driven by lower credit charge at 0.35 per cent (from 0.43 per cent previously) and higher net interest margin (NIM) at 2.26 per cent (up by nine basis points (bps)) as the research arm did not expect funding pressure as most banks have complied with the NSFR requirement and liquidity coverage ratio (LCR) well above one per cent
The upward revision was also driven by higher fee-based income at 15.4 per cent, from 6.6 per cent previously, to take into account positive of positive economy and buoyant capital market activities.
Kenanga Research, however, toned its outlook on loans growth at 3.2 per cent, from six per cent previously, on account of selective asset growth by the banks.
The research arm introduced its CY19E earnings based on the assumptions of industry loans at approximately six per cent, slightly elevated NIM at one bps and credit costs stable at around 36bps.
“Going further into 2018, we maintain our ‘neutral’ outlook.”
Although the positive outlook ahead should translate into higher loans ahead, Kenanga Research saw selective asset growth ahead plus the lack of clear concrete catalyst and game changer going forward.
The research arm had ‘market perform’ calls for most of the banking stocks under its coverage except for Affin Bank Bhd (Affin), AMMB Holdings Bhd (AmBank) and BIMB Holdings Bhd (BIMB), which are at ‘outperform’.
“We reiterate our outperform call for AmBank due to upward momentum in loans under its T4 aspirations coupled with a superior dividend yield of approximately five per cent.
For BIMB, Kenanga Research revised upwards its call to outperfrom, as the research arm expected higher financing growth, say double-digit, for 2018 due to a more aggressive stance from 2017 coupled with the group’s double-digit return on equity (ROE) position, second only to Public Bank Bhd.
“For Affin, given the expected higher contribution from Islamic banking coupled with consistent profit rate and lower NIM compression from conventional loans, hence we reiterate outperform.”