Maybank IB Research cuts 2016 loan growth forecast further

PETALING JAYA: Maybank IB Research has further trimmed the 2016 loan growth forecast from 6% to 5.3% after continued loan growth moderation in the first half of the year.
Loan growth for 2017 is expected to demonstrate a similar growth of 5.3% versus 5.6% previously.
On an annualised basis, total industry loans expanded just 2.6% as household loans expanded 4.3% but non-household loans were flat with a growth of just 0.5%.
Maybank IB Research said its earnings revisions for the respective banks have also led to lower 2016 cumulative operating profit growth forecast of 4.0% from 5.0%, while core net profit growth is unchanged at 2.1%.

“Cumulative operating profit growth for 2017 is now 6.6% from 6.0% previously while core net profit growth is estimated to be marginally higher at 4.4% versus 4.0% previously,” it noted.
Maybank IB Research expects average returns on equity (ROEs) (ex-exceptionals) to slip to 10.4% in 2016 and 10.3% in 2017 from 11.4% in 2015.
Nevertheless, Maybank IB Research still expects a better second half for the banking sector, driven by factors such as possible provision writebacks on restructured and rescheduled (R&R) loans, improved contributions from overseas operations and further cost savings.
The research house is maintaining a “neutral” call on the banking sector with “buy” calls on BIMB Holdings Bhd, Alliance Financial Group Bhd and Hong Leong Bank Bhd.
Banking stocks’ decent Q2 results were generally within expectations, with BIMB surprising positively but RHB and Maybank disappointing on the back of higher impairment allowances.
Maybank IB Research noted that Q2 cumulative operating profit for banks under its coverage expanded 7% y-o-y but core net profit contracted a marginal 1%.
It stressed that asset quality remains a concern and credit costs are expected to normalise higher. Net interest margins are likely to resume contracting in H2, post the July 13 overnight policy rate cut.
It has assumed an average 6-basis point contraction in 2016 before stabilising in 2017.