PETALING JAYA: AmInvestment Bank Research expects slower economic growth in 2025, which could lead to a cut in the overnight policy rate in the second half of the year (2H25) that would pressure net interest margins (NIM) and loan demand in the banking sector.
The research house forecasts little scope for return on equity (ROE) to rise further and as the valuations of most banks are already high and maintained its “neutral” call on the sector but cut its call on Malaysian Banking Bhd (Maybank) to “underweight” from “hold” with a target price of RM8.85 sen a share from RM10.80.
“This is based on the stock’s stretched valuation of 1.3 times price-to-book value (PBV) for the financial year 2025 (FY25) with the view that the stock’s recent re-rating has outpaced the prospects of a rise in ROE from an earnings improvement.
“We see Maybank’s FY25 ROE expansion to be limited, considering NIM compressions in Malaysia and Singapore as well as a slower growth in treasury and investment income,” the research house stated in a sector report yesterday.
It added slower export growth from a high base in 2024 and fresh tariffs on goods could see a slower pace in non-household loan growth next year.
AmInvestment Bank Research forecasts a higher service-tax rate, the floating of diesel prices, coupled with the rationalisation of the RON95 petrol subsidy in 2H25 as being likely to soften retail spending on discretionary goods, which will lead to loan growth weakening in 2025.
“We expect the banking system’s loan growth to moderate to between 4% and 5% in 2025 (2024: 5% to 6%) premised on potentially slower exports and consumption spending.
“We expect banks to continue to still hold onto adequate provision buffers to mitigate against credit risk, as repayment behaviours of small and medium enterprises (SMEs) in certain sectors and vulnerable low-income households are still being monitored closely,” it stated.
Despite the weaker outlook for the sector, the research house maintained its “buy” call on CIMB Group
Holdings Bhd with a target price of RM9.50 as it project’s the bank seeing operating-income growth of 6%, and Hong Leong Bank Bhd with a target price of RM26.90.
CIMB is its top pick due to its high liquidity with a free float of 52.9%, which is attractive to foreign funds.
The research house projects CIMB to see ROE expansion of 11.7% in FY25 from 11.3% in FY24, supported by better NIM at CIMB Niaga, Indonesia and higher contributions from CIMB Singapore, as well as further improved profitability in its digital business.
Hong Leong Bank’s appeal lies in its attractive PBV of 0.9 times, with room for improvement in valuation to reflect its ROE of 10.9%, which is higher than the sector average of 9.7%.
“The bank has stable asset quality and offers a potential rise in fee income from a regional expansion of its wealth-management business,” AmInvestment Bank Research said.
Hong Leong Bank’s strong digital focus is poised to gradually improve its cost-to-income ratio, while a potential release of its pre-emptive provision buffers ahead could improve earnings moving forward.
The research house added the recent run-up in the share price of Alliance Bank Malaysia Bhd means it offers limited upside potential, and has thus downgraded the bank to “hold” from “buy” with a target price of RM5.30 a share.
