Phillip Capital Research said the banking sector offered a relatively safe and robust earnings profile.
PETALING JAYA: The banking sector’s earnings are expected to see encouraging growth next year, fuelled by various factors despite downside risks.
Phillip Capital Research anticipated the sector’s aggregate earnings to grow by 5.9% in 2025, primarily driven by a net interest income growth of 7% year-on-year (y-o-y) and a loan growth of about 6%, amid stable net credit charges of 23 basis points (bps) and a cost-to-income ratio of 44.5%.
“We believe sector net interest margin (NIM) has bottomed and should gradually improve, averaging at 2%.
“Non-interest income growth is expected to normalise to circa 4% for 2025, primarily driven by fee income.”
The research house said the banking sector offered a relatively safe and robust earnings profile, largely driven by resilient domestic demand, healthy capital market activity and benign asset quality.
“We believe the strong performance of bank share prices in 2024 is well-justified, supported by positive macroeconomic indicators, stable corporate earnings, a robust return on equity of 9.5% (above the 10-year average of 8.9%) and low provisioning levels, with no significant asset quality stresses,” it noted.
Phillip Capital Research remained positive on the sector in 2025, supported by improved sentiment and a favourable operating environment, with limited downside risks to earnings and asset quality.
The research house preferred banks with a more aggressive approach, such as CIMB Group
Holdings Bhd, AMMB Holdings Bhd, RHB Bank Bhd and Malayan Banking Bhd, over defensive lenders such as Hong Leong Bank Bhd and Public Bank Bhd.
“Conversely, while defensive banks provide stability, their growth prospects may be more limited in a robust economic environment.
“Key downside risk for the sector includes contagion risk from geopolitical issues, extended NIM compression, asset quality deterioration, higher inflationary pressures from the upcoming removal of subsidies affecting repayment ability and weak economic growth,” the research house said.
Phillip Capital Research maintained its “overweight” call on the banking sector.
