KUALA LUMPUR: Research houses continue to have a positive stance on the banking sector for its resilient earnings and with an average dividend yield of six per cent which provide an attractive shelter for longer-term investors amidst softening interest.
In a note today, Kenanga Research said it maintained an ‘overweight’ call on the sector as sector-wide weakness may lead to investors seeking more tactical opportunities than fundamental ones which was proven right by recent share price performances.
It said that June 2023 system loans growth of 4.4 per cent year-on-year (y-o-y) was within its 4.0 to 4.5 per cent target in anticipation of modest economic activities in the second half (2H) of 2023, which could also be reflected in moderating applications reported.
“Gross impaired loans (GIL) are also stabilising at 1.76 per cent following some pressures in early months, probably due to festive-driven missed payments.
“Deposits continued to grow with current account savings account (CASA) ratios showing hints of a return, possibly signalling the softening of fixed deposit competition. We do not anticipate further Overnight Policy Rates hikes in 2023 which may disrupt product margin optimisation analysis for the banks,” it said.
RHB Research also maintained its ‘overweight’ call on the sector after Bank Negara Malaysia’s (BNM) banking sector statistics for June 2023 showed healthy growth in loans, although lending indicators are softer with a y-o-y decline in loan applications and approvals, partly due to the high base effect from last year.
“Nevertheless, we maintain our call on the sector premised on the banks’ healthy earnings and dividend growth, and a potential net interest margin (NIM) recovery in 2H 2023, it said.
It noted that system loan growth was mainly driven by mortgages (+7 per cent y-o-y), hire purchase (+9 per cent y-o-y), and working capital (+2 per cent y-o-y) with both household and non-household loans continuing to grow steadily.
It said loans in the finance (+12 per cent y-o-y) and retail (+4 per cent y-o-y) sectors also more than offset the y-o-y decline in loans from manufacturing (-4 per cent y-o-y) and utilities (-5 per cent y-o-y).
“Overall, we reiterate our 2023 system loans growth forecast of around 5 per cent y-o-y,” it shared.
Hong Leong Investment Bank Bhd (HLIB) said both system loans and deposits growth lost momentum to 4.4 per cent and 5.9 per cent y-oy respectively.
“Furthermore, leading indicators weakened. That said, asset quality improved. As for NIM, it has contracted significantly in 1Q 2023 but we expect this to moderate in 2Q to 3Q 2023.
“We retained the overweight call on the sector. Despite the recent good price showing, we believe that banks have some legs to run with risk-reward profile skewing to the upside, since headwinds are broadly baked into forward expectations,” it noted.
In another note, MIDF Research maintained its ‘positive’ stance on the banking sector with the expectation that the positive share repricing trajectory will continue.
Despite a slow NIM recovery, it said banks can look to a good non-interest income (NII) outlook and better clarity on asset quality and provisioning situation.
“There is the risk of weaker loan growth especially since leading indicators have dipped again but we believe that a stronger corporate pipeline should push 2023 loan growth into the 4.5 to 5.0 per cent range,” it added. – BERNAMA
