Banking sector expected to post decent earnings

PETALING JAYA: In the current reporting season, the banking sector in Malaysia will likely post decent earnings, supported by loan growth in the three months to March 2024.

In addition, non-interest income (NOII) is also expected to come in higher, lending further support to banks’ earnings growth for the quarter under review.

According to RHB Research, loan growth momentum in the first quarter of 2024 (1Q24) should be sufficient for sector net interest income (NII) to chalk up year-on-year (y-o-y) growth.

“This would be aided further by system loans growth marginally outpacing deposits growth on a y-o-y basis.

“Looking ahead, we understand that the banks have been gradually reducing deposit rates, and this should be positive for net interest margin (NIM),” the brokerage wrote in its report yesterday.

Data from Bank Negara showed the sector registered 6% y-o-y in loan growth in 1Q24, driven by residential mortgages, auto and small and medium enterprise loans.

As for NOII, RHB Research said banks should enjoy healthy core fees from fee-based activities such as loan-related, wealth, unit trust and bancassurance businesses.

“We learnt that treasury income from customer flow activities have been good during the quarter.

“While we have less visibility on trading gains, the 10-year Malaysian Government Securities yield stability in 1Q24 points towards a mild trading quarter for the banks,” it explained.

Similarly, MIDF Research said despite a mixed NIM outlook, 1Q24 earnings for banks should come in solid, driven by solid NOII.

“Foreign exchange volatility should continue to buoy non-fee income,” the brokerage said.

It added: “Fee income should benefit from an improved market performance, despite weaker bond issuances in the quarter.”

On NII for banks, MIDF Research said the trend would likely be mixed, as deposit competition continued to alleviate.

It noted that banks with weaker deposit franchises might still experience rising cost of funds, while loan yields had yet to see significant compression within this quarter.

MIDF Research maintained its “neutral” call on the banking sector.

“Buying opportunities do exist, despite a lack of sector catalysts,” it said, adding dividend yields were as solid as ever.

Meanwhile, MIDF Research said banks should see balance sheet growth pick up in the second half of 2024 (2H24).

“Large-scale infrastructure projects to drive business loans in 2H24, while retail pipeline remains resilient – but 1H24 is shaping up to be mediocre,” it said.

MIDF Research listed RHB Bank Bhd and Hong Leong Financial Group Bhd as its top picks.

RHB Research, on the other hand, listed CIMB Group Holdings Bhd, AMMB Holdings Bhd, Hong Leong Bank Bhd, Alliance Bank Malaysia Bhd and Public Bank Bhd as its top picks.

Overall, it maintained its “neutral” call on the banking sector, noting that while 1Q24 operating income should be decent on a y-o-y basis, bottomline trends would largely be dictated by how operating expenditure and credit cost behave.

“With sector earnings growth moderating, we do not expect a meaningful outperformance from the banks in 2024,” RHB Research said.