Banks’ asset quality to be key swing factor in coming quarters
KUCHING: Asset quality will likely be the key swing factor to earnings in the coming quarters, analysts opine of the banking sector.
According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), the recent reporting season shows further loans loss provisioning by the banks with earnings visibility still opaque.
As such, Kenanga Research maintained its preference for banks with solid asset quality such as Hong Leong Bank Bhd (Hong Leong Bank) and Public Bank Bhd (Public Bank).
“Their asset quality track records suggest that the preemptive loan provisions required should be lower relative to peers while the smaller exposure to the corporate space should shield them from chunky loan impairments,” the research arm said.
“Thus, we see these banks offering investors better earnings predictability and ‘safer’ dividend yields (assuming banks continue to be conservative with dividend pay-outs).”
The research arm also liked RHB Bank Bhd ( RHB) for its capital strength.
“While this may not translate to higher dividend pay-outs vs peers in the near term, RHB should be able to resume its capital management plans
relatively quick once the pandemic is past (versus peers that may need time to rebuild their capital positions).”
On Kenanga Research’s pick as a catch-up play, BIMB Holdings Bhd was chosen as the group offers a cheaper entry into Takaful Malaysia.
“Furthermore, its asset quality is solid after Public Bank and Hong Leong Bank. Its dividend declared in the recent reporting quarters implies robust asset quality and that it is likely to see minimal impact post the targeted assistance program.”
All in, Kenanga Research maintained its ‘ neutral’ sector call.
For the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), it is sanguine
of the banking sector’s prospect next year.
“While we recognise that there is short term headwinds for the banking sector in guise of asset quality, we are sanguine of its prospect next year,” MIDF Research said.
The research arm noted that this is in tandem with the expectation of the economy to improve in current year 2021 (CY21).
“We have seen some resiliency in the sector with the strong non-interest income generated allowing for banks to build-up its loan loss reserves.
“Futhermore, gross impaired loans ratio did not spike dramatically in the first month of the post loan moratorium period.”