KUALA LUMPUR (Oct 15): Malayan Banking Bhd is expected to face a challenging second half this year (2H18), given the risk of potentially higher levels of provisions, elevated funding costs and modest loan growth, according to Affin Hwang Capital Research. 

“We expect Maybank’s Group Consumer Financial Services division, comprising consumer, retail SME and business banking services, to contribute most of the new loan growth to the group as the Global Banking unit is still seeing some derisking of its portfolio, while being bogged down by high impairment charges.

“At our recent meeting with management, there was no change in the guidance for 2018’s net credit cost, which is more than 45 basis points (bps). Based on 1H18’s net credit cost of 44bps, this would imply a potentially higher level in 2H18,” it said in a note this morning.

However, pressure on net interest margin (NIM) of the country's largest banking group is expected to ease in the third quarter of 2018 (3Q18), thanks to liquidity management initiatives and a maintained pricing discipline.

Earlier, Maybank had seen a sharp 12 bps decline in its 2Q18 NIM to 2.27%, from 2.39% in 1Q18, attributable to higher funding costs and repricing effects of deposit rates.

“As we revise down our financial year 2018 to 2020 (FY18-20E) earnings forecasts by 1.5%-5.2% to account for a higher degree of NIM compression of eight bps against our previous forecast and slower loan growth in 2018-20E, we cut our target price to RM11.20 (based on a 1.6 times price-to-book value (PBV) target on 2019E book value per share) from RM12 (at 1.74 times PBV target).

The research house added Maybank remains its preferred pick, as it remains fundamentally solid and operationally robust, amongst other big-cap financial stocks.

At 10.05am, the stock is trading six sen or 0.63% higher at RM9.64, with a market capitalisation of RM105.51 billion.