PETALING JAYA: The banking sector's earnings in 2025 will continue to be robust support by solid gross loans growth and stable asset quality, MIDF Research says.
The research firm said if there is any profit-taking exercises on banking stocks in the near term, it would be an opportunity to accumulate.
Stable asset quality, coupled with solid dividend yields, should moderate downside risk.
"We believe 2025’s dividend outlook remains very bright. Furthermore, we expect this dividend expectation and defensive feature of the banks will be a key proposition for the banks in 2025 given the possibility of the market to remain volatile next year," MIDF said in a report.
It notes that several banks continue to maintain their intention to increase dividend payouts and more banks are offering full cash dividends -- a sign of banks being happy with its capital builds.
Bank Negara's banking statistics as of November 2024 saw banking system loans growing +5.8% year-on-year (y-o-y), which was a slight deceleration from +6% growth posted in the previous month.
"However, all segments saw robust loans growth, and we expect that the banking system loans to end close to our forecast of +6% y-o0y for 2024."
Deposits competition could also be rather mild this year, said MIDF.
The research firm's economics team is projecting Malaysia’s gross domestic product (GDP) to continue growing, albeit at more normalised level, at +4.6% in 2025.
MIDF said it expects that net interest income growth will remain robust due to stable net interest margin and sturdy loans growth, while non-interest income (NOII) growth to normalise.
"NOII in 2024 was lifted by both fee and non-fee contributions. While we opine that the growth pace may not be repeatable in 2025, we do expect growth will continue albeit at more normalised level due to base effect."
Operating expenditure would also come in at more contained level after banks invested heavily in 2024 and collective agreement adjustments for union staff.
As for asset quality, it will to continue improving with no stress expected.
"System gross impaired loan (GIL) ratio have been improving each month and was the best (since August 2023) at 1.51% as of Nov 2024.
"We have seen this for the banking sector under our coverage as well. "
The research said it expects to see a stable GIL ratio throughout 2025 with some gradual improvements.
"As a result, we anticipate lower provisioning charges, with the brunt of banks already having boosted their loan loss coverage to comfortable positions. "Potentially there could be some writebacks but we are not imputing this as a source of earnings growth."
