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Banking Sector Outlook Seen Positive on Expectation of Profit Rebound

Maybank Investment Bank (Maybank IB) Research has maintained a positive stance on Malaysia’s banking outlook on the expectation that the sector’s aggregate net profit will

rebound 14 per cent year-on-year (y-o-y) in 2022.

This would be on the back of economic recovery, which is gathering momentum, and moderating credit costs, it said. Maybank IB noted that loan applications, however, had contracted for the third consecutive month, but by a smaller 6.1 per cent in August versus -28 per cent y-o-y in July.

“Positively, working capital loan applications expanded 24 per cent y-o-y in August, this being the first positive growth after 12 consecutive months of contraction,” it said in a research note.

The research house also observed that loan growth slid markedly to just 2.5 per cent y-o-y in August from 3.1 per cent in July due to the lockdown. Household loan growth slowed to 3.4 per cent from 4.2 per cent y-o-y in July while non-household loan growth was a more moderate 1.2 per cent, it said.

“The moderation in household loan growth was led by auto hire purchase growth of just 0.8 per cent y-o-y versus 3.4 per cent in July while non-residential property lending contracted for the second consecutive month.

“Residential property loan growth was a tad slower at 6.1 per cent y-o-y in August versus 6.4 per cent in July 2021,” it shared.

In agreement with the upbeat view, CGS-CIMB reiterated its “overweight” stance with potential re-rating from an expected recovery in banks’ core net profit growth forecast at 9.4 per cent in 2021 and 7.3 per cent in 2022.

“Potential earnings catalysts for banks in 2021 include lower loan loss provisioning and an expansion in net interest margin,” it said.

The research house said the industry’s loan growth eased from 3.1 per cent y-o-y at the end of July to 2.5 per cent at the end of August due to disruptions from lockdowns on banks’ lending activities.

However, lending activities have gradually normalised as loan applications and approvals increased by 9 to 13 per cent month-on-month (m-o-m) in August 2021, it noted.

However, Kenanga Research is ”neutral” on the banking sector. Although August numbers are not as perky as expected, the research house believes that the subsequent months will make up for it as recent economic developments and the containment of the Covid-19 pandemic seemed mostly positive.

“With September 2021 seeing less restrictive movement controls, this should translate to better spending and health for the financial system,” it said.

“That said, we are cautious on the banks as we believe (positive) sentiment could be withheld by the entry of digital banks and the move towards the Standardised Base Rate in 2022.”

Source: Bernama

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