KUALA LUMPUR (Feb 2): Analysts expect banks to see weaker loan growth in 2023, amid inflationary pressures and slow economic activity, but they believe that the sector will continue to have a fairly good year ahead.
In the research houses’ respective notes, Kenanga Investment Bank Bhd forecast that 2023 would see loan growth at 4% to 4.5%, Hong Leong Investment Bank Bhd (HLIB) predicted loans rising at 5% to 5.5%, while CGS-CIMB Securities Sdn Bhd anticipated loan growth at a normalised rate of 4% to 5%.
The industry’s loan growth sped up from 5.5% year-on-year at end-November 2022 to 5.7% year-on-year at end-December 2022, fuelled by both the household and business segments.
Kenanga maintained its “overweight” call on the sector. It said banks would likely not be affected as drastically as other sectors, given their widely diversified exposure, with constant stress testing being conducted to strengthen preparedness.
“In the medium term, should macros not pan out to be worse than expected, we should see a strong earnings uplift sector-wide (more than 20% earnings per share growth) coming from the relaxation of provisioning requirements, with possible write-backs to bolster earnings further,” Kenanga analyst Clement Chua said.
He said another overnight policy rate (OPR) hike by Bank Negara Malaysia is unlikely, as further observation is needed to meaningfully determine the tolerance of the financial system to accept another 25-basis-point increase.
Kenanga’s top stock picks are Malayan Banking Bhd (Maybank), with a target price (TP) of RM10.40, for its persistently high dividend cushion and leading market share, CIMB Group Holdings Bhd (TP: RM6.40) for its resilient non-interest income stream performance, and Alliance Bank Malaysia Bhd (TP: RM4.20) for its strength in the small and medium enterprise space.
HLIB, on the other hand, maintained its “neutral” call on the sector, stating that it believes the banking sector has a balanced risk-reward profile.
“Tailwinds which were supposed to be enjoyed by banks (like big net interest margin expansion and strong credit growth) over financial years 2022 to 2023 have instead been frontloaded to last year, turning the next 12 months to be less exciting,” HLIB analyst Chan Jit Hoong said.
“Furthermore, banks may now have to grapple with possibly steeper cost of funds, smaller non-interest income, and loan growth. However, undemanding sector valuations and a decent dividend yield of 5% are solace that would provide downside support to share prices.”
HLIB recommended RHB Bank Bhd (TP: RM6.60) for its high common equity tier 1 ratio and attractive price point, as well as Bank Islam Malaysia Bhd (TP: RM3) for its laggard share price performance and bright structural long-term growth prospects.
Earlier, Chan pointed out that net interest margins are seen to be hurt by fixed deposit (FD) repricing, current account savings account (CASA) being consumed and substituted to FD, along with price rivalry for FD.
CGS-CIMB reaffirmed its “overweight” call on banks predicated on the potential rerating catalyst of continuous expansion in net interest margins amid an OPR upcycle, and stronger growth in non-interest income due to improvement in investment income in 2023.
Its analyst Winson Ng said the firm’s suggested stocks are RHB (TP: RM7.62) for its high dividend yield, Hong Leong Bank Bhd (TP: RM25.30) for its asset quality being among the best in the sector, and Public Bank Bhd (TP: RM5.20) for its lowest gross impaired loan ratio in the sector.