BANKING SECTOR

CIMB Research is projecting a stronger net profit growth of 9.2% in 2017, compared to only 0.9% in 2016, boosted by the expected normalisation in loan-loss provisioning with a projected increase of only 6% in 2017 against a jump of 67.2% in 2016.

Another driver, it said, would be the expected non-recurrence of large impairments of RM452mil incurred by two banks in 2016 for their exposure to Swiber bonds.

The research house, which maintained its “overweight” call on the banking sector said this was mainly based on its expectation for a recovery in net profit growth in 2017.

“Also, the dividend yield for Malaysian banks is attractive at an average of 4% in 2017,” it said in a note.

It said the downside risks to its call were a spike in gross impaired loan ratio, and higher credit cost upon the adoption of the new Malaysian Financial Reporting Standard (MFRS) 99 in 2018.

CIMB Research said banks’ earnings in the first quarter underperformed its forecasts due to Alliance Bank’s weaker than expected topline growth. “Malaysian banks’ Q1’17 net profit was below expectations, as one bank missed our (and the market’s) estimates, while none of the remaining banks outperformed our (and the market’s) expectations,” it said. In the report, CIMB Research noted that Malaysian banks had a good start to 2017, recording a strong 14.1% year-on-year core net profit growth in the first quarter.

It said this was the first double-digit net profit growth for banks in the past four to five years and the strongest since the third quarter of 2011.

Excluding CIMB, core net profit growth remained strong at 8.3% year-on-year for banks under its coverage. It said the key driver for earnings during the quarter was the 17.6% yearon-year decline in loan loss provisioning.

Another positive take for the quarter, it said, was the pick-up in topline growth – from 3.8% year-on-year in the fourth quarter of 2016 to 6.3% for net interest income, and from 0.1% to 4% for non-interest income.

“Though unspectacular, we see this as a decent performance considering the still challenging operating environment in the first quarter with weak consumer and business sentiment, tight market liquidity which continues to exert pressure on banks’ margins.