Banking sector earnings recovery to sustain into 2018 — Analysts

KUCHING: Malaysia’s banking sector is expected to maintain its earnings recovery this year, but certain segments could pose a risk to the potential stablility of asset quality, analysts observed. outlook said overall, most banks ended the fourth quarter of 2017 (4Q17) on a positive note, with the exception of AMMB Holdings Bhd (AMMB).

It noted that loans growth grew at average by 1.3 per cent q- o- q compared with 0.4 per cent q- o-q in 3Q17 supported by BIMB Holdings Bhd ( BIMB), RHB Bank Bhd ( RHB) while Affin Bank Bhd (Affin) and Alliance Bank Malaysia Bhd (ABMB) reversed the negative trend.

It also noted that liquidity position improved at a muted pace of 0.7 per cent q- o- q compared with 1.5 per cent q- o- q, which tracked a slower loan growth and lifiting excess liquidity higher in 4Q17.

As for the sector’s net interest margins ( NIM), the research team said it was flat at 2.2 per cent due to the absence of deposits competition and more stable COF but non-interest income ( NOII) grew at a stabilised pace of 4.8 per cent q- o- q to RM5.4 billion due to higher fee income and stable forex income.

Credit costs improved to 39bps against 47bps in 3Q17 due to absence of large impairments while gross impaired loans (GIL) saw its overall sector asset quality unchanged at 1.64 per cent, the research team said, noting that overall capital position also remained robust and was well positioned to weather headwinds.

“We expect the sector’s earnings recovery to sustain into 2018 on the back of higher loan growth expectations, stable contr ibut ion from NOII, continued discipline on expenses, and ending of impairment programme.

“While we expect further stability in banks’ asset quality in 2018, certain segments may pose a risk to the potential stablility of asset quality,” it opined.

It also expected banks’ loan loss coverage ( LLC) to improve given the slower trend of large provision.

It added that liquidity is on the mend since BNM implemented forex measures that cap further liquidity outflow.

Al l in, HLIB Research maintained a ‘neutral’ call on the sector.

“The encouraging signs in 4Q17 will ensure loan growth target of five to 5.5 per cent is achievable due to positive lending indicators.

“We view that the banking sector is poised to record a better year in 2018 due to improving returns on equity ( led by earnings recovery), improving NOII income, stable asset quality, and less severe impact of MFRS9 impact.”