CGS-CIMB Research's projected financing growth for Bank Islam in the financial year 2024 is 8.4%.
PETALING JAYA: Bank Islam Malaysia Bhd is targeting a financing growth of 7% to 8% for 2024, which is higher than CGS-CIMB Research’s projected loan growth of 4% to 5% for the banking industry.
The research firm’s projected financing growth for Bank Islam in the financial year 2024 (FY24) is 8.4%. The bank’s compounded annual growth rate is premised at 9% from FY24 to FY25.
According to CGS-CIMB Research, this growth will be anchored by the expansion in household financing, which accounted for about three quarters of its total financing at end-September 2023.
This guidance was disclosed at CGS-CIMB Research’s Malaysia Corporate Day recently. Bank Islam was represented by its group chief executive officer Datuk Mohd Muazzam Mohamed and group chief financial officer Azizan Abdul Aziz.
As for return on equity (ROE), the bank aims to raise it from 7% to 8% in FY23 to 9% to 10% in the next three years. This is higher than CGS-CIMB Research’s projected ROE of 8% to 9% for FY24-FY25.
“According to the bank, the levers for ROE expansion would be its swift loan growth (while actively managing its net financing margin) and the expansion in non-fund-based income,” the research firm said in a report.
During the session, Bank Islam stated that the deposit competition in the banking industry did intensify towards end-2023, but the level of competition was not as severe compared to a year ago.
“In the fourth quarter of 2022, most banks were expecting hikes in the overnight policy rate (OPR) in 2023; hence, they were more willing to price their fixed deposits at higher rates in anticipation of a subsequent increase in lending rates. Comparatively, most banks expect the OPR to be stable in 2024,” it added.
With a high percentage of its transactions now being conducted through online platforms, the bank also reduced its number of branches from 149 in 2020 to 135 currently.
However, its cost-to-income ratio (CIR) is expected to remain lofty in the next few years.
“Bank Islam’s CIR was high at 59.7% in the nine-month period of 2023, compared to an average of around mid-40% for the sector.
“The bank stated that the CIR would remain lofty in the next few years, due to the need for investments in several areas. In the longer term, it aims to bring down its CIR to 55% in FY26.”
CGS-CIMB Research retained its “add” call on Bank Islam, premised on its above-industry loan growth and expected stronger trends in net financing margin relative to its peers in the next few quarters, as a result of active management of its assets and liabilities.
“Re-rating catalyst would be our projected core earnings per share growth of 16.8% in FY24, underpinned by a 7.5% rise in net financing income and 28.5% drop in financing loss provisioning. We deem Bank Islam’s 2024 price-to-earnings of 8.4 times (versus the sector’s 9.8 times) as attractive,” it said.
