Local lenders likely to end 2018 with decent growth

By NG MIN SHEN / Pic By TMR File

Malaysian banks are expected to end 2018 on firm footing, as the momentum seen in the first nine months of last year (9M18) is projected to carry over into banks’ soon-to-be-released earnings for the fourth quarter ended Dec 31, 2018 (4Q18).

The majority of local lenders had achieved sustainable results for 9M18, with most reporting improved earnings and revenue amid efforts to contain operating expenses and provisions, in light of economic and financial uncertainties at home and abroad.

For 3Q18, six of the country’s eight largest banking groups posted higher earnings except for Malayan Banking Bhd (Maybank) which was hit by global volatility, while Public Bank Bhd performed better in 3Q17 due to a one-off gain.

Lenders are also likely to benefit from positive loan trajectory for the year, as November’s numbers indicated continued growth in system loan growth.

According to MIDF Amanah Investment Bank Bhd, domestic banking system’s total loans grew 6.2% year-on-year (YoY) in November 2018, marking the eighth consecutive month of loans growth acceleration.

“This could be attributable to the consistent loans demand and approvals in the previous months. We expect the banking system loans growth will end on a strong note, beating our +5.5% YoY projection for the year,” the research house said in its January 2018 report recently.

Mortgages, automotive loans and working capital loans grew 7.7%, 0.1% and 6.2% respectively in November last year.

MIDF added that working capital loans had improved following some clarity in government policy after the tabling of Budget 2019 and the midterm review of the 11th Malaysia Plan.

In a separate note, Maybank Investment Bank Bhd upped its industry loan growth forecast to 5.6% for 2018 from 5.3% previously, and to 5.1% for 2019 from 4.9%.

The research firm said the banking industry’s net profit is expected to register a growth of 6.4% in 2018 and 2019 following a 14.9% expansion in 2017.

“The 6.4% prediction is underpinned by expectations for ongoing positive jaws (whereby gross income growth exceeds operating expenses growth) and stable credit costs,” it said.

In a December 2018 note, Affin Hwang Investment Bank Bhd said the banking sector’s core net profit for 9M18 was within expectations at RM20 billion, accounting for 75.7% of its 2018 estimated sectorwide net earnings projection of RM26 billion (prior to a -3.1% revision).

The research house saw more positives in 3Q18 versus 2Q18, although non-interest income continued to decline YoY and quarter-on-quarter (QoQ).

Core net profit for the sector rose 1.3% YoY to RM6.37 billion in 3Q18. Fund-based income grew 1.6% YoY, while pressure on net interest margins (NIM) eased on a QoQ basis for some lenders.

Downside risks to lenders’ 4Q earnings include compressed net interest income and NIMs, with the latter being pressured by the slowdown in current account and savings account, while competition for deposits continues to intensify.

Meanwhile, Bank Negara Malaysia (BNM) said net financing (outstanding loans of the banking system, excluding development financial institutions, and outstanding corporate bonds) saw annual growth of 6.3% in December versus 7.3% in November.

This was due mainly to moderation in outstanding corporate bonds growth at 8% against 10.5% recorded in November, reflecting the high base effect in December 2017.

Outstanding business loan growth moderated to 5.4% in December from 6.3% in November, mainly driven by the construction and real estate sectors, while household loan growth dipped slightly to 5.6% in the final month of the year compared to 5.7% in November.

Financial institutions remained well-positioned to withstand severe macroeconomic and financial shocks, with excess capital buffers of RM143 billion as at December 2018.

“Domestic financial markets recovered during the month amid a weakening US dollar and external developments that supported investor sentiments on regional financial markets,” BNM said in its monthly highlights for December 2018.

The ringgit appreciated 1.2% against the greenback, mainly on market expectations for a slower pace of monetary policy normalisation in the US, as well as easing concerns surrounding global trade disputes.

The FTSE Bursa Malaysia KLCI rose 0.6% as investors rebalanced their portfolio investments into regional assets amid uncertainties.The fiveyear Malaysian Government Securities yield declined by 9.5 basis points.

Headline inflation came in at 0.2% in December, unchanged from the previous month, largely reflecting the negative contribution from transport inflation due to the base effect, and bringing headline inflation to an average of 1% for 2018 versus 3.7% in 2017.

Excluding the impact of changes in consumption tax policy, core inflation — which excludes price-volatile and price-administered items — was at 1.6% in December, unchanged from November.