Bank sector’s core earnings growth for 2018 now projected at 9.2 pct
KUCHING: The bank sector’s core earnings growth forecast for 2018 has been lowered slightly to 9.2 per cent compared with 9.3 per cent previously.
After the conclusion of the first quarter of 2018 ( 1Q18) results, AmInvestment Bank Bhd’s (AmInvestment Bank) projection for the sector’s core earnings growth for current year 2018 to 2019 (CY18 to CY19) has now been revised to 9.2 to 7.5 per cent compared with 9.3 to 7.7 per cent previously.
“This is due to the higher earnings base after the inclusion of BIMB Holdings Bhd (BIMB Holdings) following our recent initiation coverage on the stock as well as housekeeping adjustments to our earnings projection for Hong Leong Bank Bhd (Hong Leong Bank) and Alliance Bank Malaysia Bhd,” the research firm said.
According to AmInvestment Bank, all the banks’ earnings in the first quarter of 2018 (1Q18) results came in within expectations.
The research firm noted that 1Q18 sector core earnings grew 3.4 per cent quarter on quarter (q-o-q) after stripping out CIMB Group Holdings Bhd’s (CIMB) one-off gains of RM152 million from the sale of its 50 per cent stake in CIMB Securities International (CSI) to China Galaxy, Hong Leong Bank’s RM68 million gain from the sale of VISA shares and AMMB Holdings Bhd’s ( AMMB) RM146 million mutual separation scheme (MSS) expenses.
“On a q-o-q basis, the improvement came from the stronger core earnings of RHB Bank Bhd, CIMB, BIMB Holdings and AMMB.”
On the overall sector’s net interest margin (NIM), AmInvestment Bank highlighted that all banks except Hong Leong Bank recorded an improvement in NIM in the quarter due to the recent overnight policy rate (OPR) hike.
It further highlighted that Hong Leong Bank was the only anomaly with a drop in NIM by three basis points (bps) q-o-q in 1Q18.
“This was attributed to a higher funding cost with higher rates offered for FD to lock in the deposit rates before the increase in OPR in January 2018.”
Looking ahead, the research firm expected banks’ NIM to taper subsequently from 1Q18 as funding cost is expected to trend higher with lagged repricing impact of deposit rates following the OPR hike.
“Also, we see stronger competition on deposits ahead when loan growth picks up pace as well as when the implementation date of net stable funding ratio (NSFR) draws closer which has been indicated to be no earlier than January 1, 2019.”
As for the sector’s cost income (CI) ratio, AmInvestment Bank noted that it improved slightly to 47 per cent based on lower operating expenses.
“Digitalisation initiatives and strategies of banks are expected to continue to gradually improve banks’ cost base.”
On another note, AmInvestment Bank said that the Day-1 impact of the Malaysian Financial Reporting Standards 9 (MFRS 9) was manageable for banks.
It also said that RHB reported a drop of 20bps, while Maybank, CIMB and BIMB had a decline of 39bps, 70bps and 32bps to the Common Equity Tier 1 (CET1) ratio respectively.
“There were no surprises as the decline was within management’s guidance. Elsewhere, Public Bank Bhd reported an enhancement to its CET1 ratio of 20bps.”