HLIB Research maintains ‘neutral’ call on banking sector

PETALING JAYA: Hong Leong Investment Bank (HLIB) Research is maintaining a “neutral” stance on the banking sector due to modest growth outlook for earnings, loan and deposit growth. The modest earnings growth will result in lower return on equity and expected returns.
The research house said the recently concluded results season showed improvement with forex income playing an important role in better earnings.
HLIB Research noted that results of the seven banks under its coverage came in largely in line except for Affin Holdings Bhd and AMMB Holdings Bhd that reported above better results while CIMB Group Holdings Bhd disappointed. The other banks – Public Bank Bhd, Alliance Financial Group Bhd (AFG), Malayan Banking Bhd and RHB Bank Bhd posted results that were in line with forecast.
It said net profit for banks under its coverage inched up by 20.6% quarter-on-quarter and 10.6% year-on-year to RM5.7 billion.
“The winners in CY3Q16 were AMMB, CIMB, Maybank and RHB where forex movements, higher recoveries, writebacks and steady net interest margin played important roles,” it noted.
However, HLIB Research said net interest income contribution was still weak with slower loan growth puncturing the income, which was then mitigated by the firm net interest margin, assisted by higher current account savings account (CASA) composition and the reduction of expensive fixed deposits.
Overall, it said the banking players continued their efforts to tighten gross impaired loans (GIL), which saw an improvement of four basis points to 1.71% for the quarter. Maybank reported remarkable GIL comeback for the first time after four quarters due to improvement in Singapore GIL.
On a year-on-year basis, loan growth for nine banks decelerated to 2.5% in September, which was within expectation given the absence of demand catalyst for household loans while business loans remained stable.
“Most banks under our coverage struggled to grow their loan book which fell below industry average of 4.2%, with Maybank witnessing weakness at -1.0% while key winner during Q3 results was Public Bank (+7.6%). Meanwhile, Affin, AFG, AMMB, CIMB, Hong Leong Bank Bhd and RHB registered loan growth of 1.9%, 3.0%, 0.6%, 2.3%, 4.0%, and 2.1% respectively,” HLIB Research said.
It noted that liquidity position in the banking system has been improving from a testy period in the first half of 2016. On a year-on-year basis, deposit growth for eight banks jumped by 4.3%, led by Public Bank whilst Maybank disappointed with slower growth of 6%.
The research house pointed out that net interest margin has been relatively stable in the third quarter in absence of competition for deposits.
"Entering Q4, we believe banks will be more disciplined in their asset repricing given the revision in base rate due to the Overnight Policy Raterevision. Given this, we project steady net interest margin in Q4,” it said.