Higher margins seen for banks
Analysts also expect domestic loan growth to expand at faster rate next year
PETALING JAYA: Analysts are projecting higher margins for banks in 2018 on expectation that Bank Negara will increase interest rates next year.
According to a report by Maybank IB Research, the key contributor to the banks’ earning growth this year was driven by the expansion of net interest margin (NIM).
NIM measures the difference between what a bank pays to get deposits or other funds, and what it charges to lend money.
Maybank IB has lowered its 2017 industry loan growth forecast to 4.1% from 4.6% previously.
“We expect 2018 domestic loan growth to expand at a faster rate of 4.5% emanating from higher consumer loan growth,” it said yesterday.
The research house expects NIM to remain stable next year, partially on an expected 25-basis point hike in interest rates by the central bank.
Earnings-wise, Maybank IB has raised banks’ operating profit growth forecast to 6.7% from 6.5% previously, while net profit was forecast to grow 13.7% versus 12.1% earlier.
It attributed the higher earnings forecast on the back of third quarter results.
According to Affin Hwang Capital Research, the third quarter results were a record in terms of profits for the banking sector.
“The third quarter earnings appear to be the highest ever achieved by the Malaysian banking sector,” it said in a report on Tuesday.
Maybank IB said that four banks reported double-digit growth in the third quarter, with CIMB Group Holdings Bhd ahead of the pack with a 30% year-on-year increase.
Hong Leong Bank came in second with a record contributions from its 20%-owned associate Bank of Chengdu, which led to an 18% y-o-y growth in net profit.
However, AMMB Holdings Bhd and RHB Bank Bhd saw their core net profit contracted 6% and 3% y-o-y, respectively.
Alliance Bank Malaysia Bhd’s core net profit contracted 7% y-o-y due to higher operating expenses as well as higher expenditure on product investments and restructuring.
Cumulatively, gross loan growth for the seven banks was slower at 5% y-o-y in the third quarter.
“This is attributed to both a slowdown in corporate loan disbursements as well as tepid loan growth overseas,” Maybank IB said.
On an annualised basis, the research house said the cumulative loan growth was “even slower” at just 2.2%, and was “especially tepid” for the two largest banks, coming in at just 0.1% and 1.7% for Malayan Banking Bhd (Maybank) and CIMB, respectively, as corporate loan repayments continued to outstrip disbursements.
For next year, Maybank IB is expecting a lower operating profits on slower loan growth assumptions.
For 2018, the research house has lowered its growth forecast on the banking sector’s operating profit to 5.4% from 5.9% previously.
Meanwhile, it expected banks’ core net profit growth to decline to 5.8% from 7.1%