Banking’s core earnings to grow by 4.6 per cent in 2019
KUALA LUMPUR: The banking sector’s core earnings is expected by analysts to grow by 4.6 per cent in 2019 while non-interest income (NOII) has been projected to be flat.
AmInvestment Bank Bhd (AmInvestment Bank) expects the sector’s core earnings to grow by 4.6 per cent in 2019, down from 6.5 per cent in 2018. It noted that this is expected to be underpinned by a modest growth of 3.6 per cent in total income, supported by higher net interest income (NII) from loan expansion.
“Meanwhile, NOII is projected to be flat with controlled growth in operating expenses and stable credit cost,” the research firm said.
“We do not expect significant rises in provisions for loan impairments.”
For 2019, AmInvestment Bank expected loans for the Malaysian banking industry to grow by four to five per cent, premised on a slower gross domestic product (GDP) expansion of 4.5 to 4.8 per cent.
This will be close to 2018’s expectation of five per cent growth, the research firm said, on the back of a projected GDP increase by 4.8 to five per cent.
It further noted that household and non-household loan growth is expected to moderate slightly in 2019, while capital investment spending in services and manufacturing and private consumption will drive economic growth.
On the overnight policy rate (OPR), AmInvestment Bank expected it to be unchanged at 3.25 per cent in 2019.
“Net interest margins (NIMs) for banks in 2019 are expected to be slightly compressed or flat at best, compared with 2018.
“NIMs could be still be pressured by the slowdown in the growth of current account and savings account (CASA) and decline in CASA ratio despite the extension in the net stable funding ratio (NSFR) observation period to 2020.”
The research firm did not foresee deposit rates offered by banks to be as high as that in the deposit campaigns before the deferment of the NSFR.
“Meanwhile, NIMs of banks’ subsidiaries, namely Maybank Indonesia and CIMB Niaga, are likely to still encounter margin pressures in 2019 although lesser than in 2018.
“This will be engendered by the rise in interest rates in Indonesia to mitigate the impact of another two Fed rate hikes this year.”
According to AmInvestment Bank,10- year MGS yields are unlikely to trend significantly lower going into 2019 as further interest rate increases in the US loom.
“This could result in softer issuances of new sukuk or bonds in 2019. Markets are expected to remain volatile in the near term, and it continues to look challenging on banks’ fee income, particularly the investment banking (IB) and fund management business.”
For 2019, the research firm has already projected a lower NOII for the larger capitalised banks, Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd (CIMB).
As for asset quality for banks, AmInvestment Bank expected it to remain stable in 2019 albeit an anticipated slight uptick in gross impaired loans (GIL) ratio.
“GIL ratio for domestic loans could inch up in 2019 from 1.5 per cent while that of overseas loans is expected to be holding up, barring any significant deterioration in oil prices and escalation in the US-China trade war.
“Loan exposures to commercial real estates, construction and oil and gas sectors are likely to be closely monitored.”