Banks to grow asset selectively

PETALING JAYA: Banks are expected to maintain a cautious stance and grow asset selectively through 2018.

According to Kenanga Research, banks’ focus on selective asset growth is due in part to higher credit charge, following the implementation of the new accounting standards, MFRS9, despite the optimistic outlook on the country’s economy this year.

“Despite the positive outlook, banks will still be cautious and selective on assets. Part of the caution on assets is due to curb higher credit charge under the MFRS9 era,” the brokerage said.

“Although guidance on credit charge has been lower than expected, we do not discount volatility under the MFRS9 era if economic outlook shift downwards,” it added.

Kenanga Research said in its report yesterday that its earnings estimates for Malaysian banks had been revised upwards.

The brokerage, however, maintained its “neutral” outlook on banks.

“Although the positive outlook ahead should translate into higher loans ahead, we see selective asset growth ahead plus the lack of clear concrete catalyst and game changer going forward,” it explained.

Kenanga Research said banks’ earnings could grow 12.% year-on-year (y-o-y), up from its previous forecast of 4% y-o-y.

It said the higher earnings estimate for 2018 would be driven by lower credit charge at 0.35% from 0.43% previously; higher net interest margin (NIM) at 2.26% (up by nine basis points); and higher fee-based income growth at 15.4%, up from the previous estimate of 6.6%, to take into account positive of positive economy and buoyant capital market activities.

Kenanga Research said it expected NIM of banks to improve this year, as it did not expect funding pressure due to the fact that most banks had complied with the net stable funding ratio requirement and their liquidity coverage ratios were well above 100%.

However, it toned its outlook on loans growth at 3.2%, compared with 6% on account of selective asset growth by the banks.