PETALING JAYA: The outlook for the banking sector remains positive, underpinned by the country’s stable growth prospects.
This is despite recent indicators from Bank Negara showing loan growth in May had moderated to 5.8% year-on-year (y-o-y) from 6% y-o-y in the preceding month, weighed by a slowdown in the business segment.
According to analysts, the latest reading was still within market expectations, and it indicated the sector loan growth would likely meet the annual projection for 2024.
TA Research, for one, maintained its 2024 loan growth forecast at 6.1%, supported by consumer and business loan growth of 6.3% and 5.9%, respectively.
“We reiterate our ‘overweight’ call on the sector based on rising loan growth, stabilising net interest margins, the potential for higher net interest income, gradual acceleration in fee income and healthy capital and liquidity buffers,” the brokerage wrote in its report.
However, it acknowledged the sector still faced potential downside risks, which included a decline in asset quality due to concerns over rising inflationary pressures amid ongoing subsidy rationalisation, persistent external shocks, weaker contributions from overseas operations and consistently high overhead expenses.
“Despite these risks, the sector’s outlook remains positive, supported by strong performance indicators and growth prospects,” TA Research said.
Similarly calling for “overweight” on the banking sector, Kenanga Research noted the May loan growth of 5.8% was within its expansion target of 5.5% to 6% for 2024 based on expectations that the household segment would be supported by inflows of new mortgage and hire purchase accounts, while the business segment would be driven by the retail and service sectors.
“The sector remains appealing due to attractive dividend yields (6% to 7%) on most stocks, coupled with lower inherent sector volatility compared to other industries,” the brokerage said.
“Significant share price movements have been observed with the influx of foreign investors aiming to acquire major sector stocks,” it added.
Kenanga Research said market tailwinds, such as ongoing loan growth and gross domestic product improvement, along with better margin retention, were anticipated to continue overshadowing industry headwinds like inflationary pressures and a weaker ringgit. “We believe this will likely result in fewer challenges to the sector’s resilience,” it added.
Meanwhile, RHB Research and Hong Leong Investment Bank (HLIB) Research retained their “neutral” stance on the sector. Both brokerages maintained their 2024 loan growth projection at 5% to 5.5%.
RHB Research said: “We remain ‘neutral’ on the sector amid a backdrop of normalising sector earnings growth. We continue to prefer stocks with better growth prospects – earnings and/or dividends.”
Its top sector picks included CIMB Group
Holdings Bhd, AMMB Holdings Bhd, Hong Leong Bank Bhd, Alliance Bank Malaysia Bhd (ABMB), and Public Bank Bhd.
Explaining its stance, HLIB Research said it viewed the banking sector as lacking zest, meaningful tailwings and fresh positive catalysts to spur share prices significantly higher. At the same time, the brokerage opined that there were no strong compelling reasons to trim positions on banks.
“Valuations are not excessive and banks are still eking out minor profit growth in financial years 2024 and 2025 (at forecasts of 6% and 4%, respectively),” it said with “buy” calls on Public Bank Bhd, AMMB and ABMB.
