AmInvestment keeps ‘overweight’ call on banking sector

PETALING JAYA: AmInvestment Bank Bhd is keeping its “overweight” outlook on the banking sector, premised on a positive momentum for loan growth with business loans improving and stable asset quality trend for domestic loans while that for overseas operations are improving.

It said the outlook was also based on signs of a better outlook for capital market activities, a more stable return on equity (ROE) on banks ahead and gradual improvement in provisions and earnings of banks moving forward as external economic conditions are expected to turn better progressively.

“We have raised the sector’s core earnings growth for calendar year 2017/2018/2019 to 8.6%/10%/6.9% from 6.4%/8.2%/6.5% respectively, after adjusting our estimates for banks’ net interest margin (NIM) and non-interest income (NOII) higher,” its analyst Kelvin Ong said.

“We expect an improvement in the sector’s earnings growth in calendar year 2017 from a subdued -0.7% year-onyear (y-o-y) in calendar year 2016,” he added.

Ong said this is due to lower provisions and improvement in banks’ operating income from a higher NIM and NOII as a result of a stronger capital market.

He noted that in the 1Q’17 sector core earnings rose by 6.1% quarter-on-quarter (q-o-q) and 147% y-o-y.

On a y-o-y basis, the improvement in core earnings was attributed to higher operating income (rise in net interest, NOII and Islamic banking income) and lower provisions for loans losses.

Ong said the results of Maybank, Public Bank, RHB Bank, Hong Leong Bank, CIMB and Alliance Financial Group all came in within the research house’s expectations while AMMB’s earnings met consensus estimates.

On a separate note, HLIB Research said it maintained its 2017 loan growth forecast at 6% y-o-y, supported mainly by the business segment that will capitalise on development spending as well as a recovery in the SME segment.

In 1Q’17, the research house said loan growth for banks accelerated to 0.9% q-o-q, supported by the retail and SME segment.

HLIB Research kept its “neutral” stance on the sector due to modest growth outlook for earnings, loans and deposit growth, noting the modest earnings growth will result in a lower ROE and a lower expected returns.