Domestic banks’ core earnings seen growing a tad slower in 2018
PETALING JAYA: The domestic banking sector’s core earnings are expected to grow at a slightly slower pace in 2018, according to AmInvestment Bank Research.
The research firm projects the sector’s calendarised core earnings to grow by 9.3% this year, compared to 10.1% in 2017.
The anticipated lower growth is mainly driven by the higher earnings base last year, following the release of the banks’ financial results in the fourth quarter of 2017 (Q4’17).
Overall, banks’ earnings for the full-year 2017 increased by 14.4% contributed by better profits of Maybank, CIMB, Public Bank, Hong Leong Bank and RHB Bank. This was supported by higher operating income and lower provisions.
However, the banking sector’s Q4’17 core earnings dipped by 3.3% quarter-on-quarter (q-o-q) after excluding Maybank’s one-off gains of RM185mil from the disposal of property, plant and equipment.
The sequential decline was due to AMMB Holdings Bhd’s (AmBank) higher provisions due to normalising credit cost, RHB Bank’s prudential RM104mil impairment on bonds related to the oil and gas sector in Singapore and CIMB’s lower earnings as a result of higher operating expenses and allowances for other impairment losses.
“Maybank and Hong Leong Bank’s earnings were above our expectations. For Maybank, it was due to lower-than-expected provisions while for Hong Leong Bank, the variance to our expectation was due to higher-than-expected net interest income, lower provisions and stronger share of profit from its associate in China, Bank of Chengdu.
“Public Bank, RHB Bank, CIMB and Alliance Bank’s results were in line while AmBank’s earnings were short of consensus expectation,” said the research house in a note.
Loan growth has remained soft in Q4’17, given a slowdown in international loans and the impact of foreign exchange translation as the ringgit continues to strengthen.
The banking sector’s loan growth slowed down to 2% year-on-year (y-o-y) in Q4’17 from 5% y-o-y in Q3’17. As for 2018, banks are generally expecting a higher loan growth of about 5% to 6%. Banks’ asset quality has improved further in Q4’17, with the sector’s gross impaired loan ratio declined to 2.01% from 2.09% in Q3’17.
Provisions in the final quarter of 2017 were also lower by 20.8% q-o-q.
“All banks reported lower provisions q-o-q with the exception of AmBank, which record- ed a net provision in the quarter compared to a net write-back in provisions in Q3’17,” said the research house.
The banking sector’s cost-to-income ratio remained stable at 47.2% in Q417, against a core operating income growth of 1.1% q-o-q. Moving forward, digitalisation initiatives and strategies of the banks are poised to gradually improve banks’ cost base. AmInvestment Bank Research has reiterated its “overweight” stance on the banking sector, with “buy” calls on RHB Bank, Public Bank and Alliance Bank.