New Straits Times

‘Overweight’ call on banking sector

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KUALA LUMPUR: It has been a better-than-expected third quarter for the banking sector, with four out of eight banks under Hong Leong Investment Bank Bhd’s (HLIB Research) coverage beat profit estimates.

The research firm said Affin Bank Bhd, Alliance Bank Malaysia Bhd and CIMB Group Holdings Bhd had seen lowerthan-expected loan loss provision, while RHB Bank Bhd booked stronger-than-expected total income.

Another four banks — AMMB Holdings Bhd, Bank Islam Malaysia Bhd , Malayan Banking Bhd (Maybank) and Public Bank Bhd — posted results that were in line with HLIB Research’s estimates.

It said while the banking sector ’s earnings declined six per cent in the third quarter on the back of negative jaws ratio, exMaybank, the lower provision for bad loans (-17 per cent) helped to cushion the overall impact.

HLIB Research said despite the slight negative jaws ratio generated from quicker operating expenditur­e growth (up 1.0 per cent) versus total income (flattish), the sector’s bottom-line rose 25 per cent thanks to lower allowance for bad loans (-31 per cent).

At the top, the broadening in net interest margin (NIM) (up 15 basis points) and loans growth (up 4.0 per cent) were erased by poor non-interest income (-23 per cent).

It expects domestic banks’ NIM to come under slight pressure due to deposit rivalry and limited scope for further current account savings account expansion.

HLIB Research said separately, gross impaired loan ratio was likely to creep upwards but added that it was not worried as banks had made heavy preemptive provisioni­ng for their financial year 2020.

HLIB Research has retained its “overweight” call on the sector.

“The sector’s risk-reward profile skews favourably to the upside as most negatives have been considered by the market.

“The Covid-19 woes will fizzle out next year while the economy and the banking sector will get better in time.

“Furthermor­e, valuations are undemandin­g and there is ample market liquidity,” it added.

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